US consumer sentiment improves as oil falls

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US consumer sentiment improved this month to its highest level since April, a survey showed yesterday, as Americans were more optimistic about the future, including short-term inflation, even as they were gloomier about current conditions.

According to the Reuters/University of Michigan survey – a key gauge of attitudes among US consumers that helps predict future retail sales – overall sentiment rose from 61.2 in July to 61.7 in August. Although it fell slightly shy of economists’ expectations, it reflected the most positive mood since April, when a reading of 62.6 was recorded.

Driving the improvement was a sharp drop in expectations about the six-month outlook, which rose from 53.5 in July to 56.8 this month – the highest since March. One-year inflation expectations dropped sharply from 5.1 per cent in July to 4.8 per cent in August, which is the lowest since April.

The recent decline in the price of crude oil, which helped ease the pain of high prices at the petrol pump, is considered a main driver of the improved sentiment on inflation. Longer term five-year inflation expectations remained steady at 3.2 per cent.

The brighter outlook on inflation could help offset some of worries that emerged after a worse-than-expected reading on the July consumer price index, which was released on Thursday to show a 5.6 per cent annual rise – the highest since 1991.

Many economists and policymakers believe that the July CPI data will constitute a peak in headline inflation, but concerns have increased that the easing of price pressures could take longer.

Meanwhile, the University of Michigan survey showed that consumers’ assessments of current conditions declined from a reading of 73.1 in July to 69.3 this month.

Separate data showed industrial production rising by 0.2 per cent last month, which was better than the flat growth expected by economists.

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