Consumer sentiment in the United States improved modestly in June as easing petrol prices provided relief to households, though confidence remains near historic lows amid persistent inflation concerns.
Data released on Friday by the University of Michigan's Surveys of Consumers showed lower-income households drove much of the improvement in sentiment, reflecting the disproportionate impact of fuel costs on household budgets.
The University's Consumer Sentiment Index rose to 48.9 in June from a record low of 44.8 in May.
Markets had expected a smaller increase to 46.0. The improvement was broad-based, with gains recorded across age groups, education levels and political affiliations.
Even with the latest increase, consumer sentiment remains below levels seen during the COVID-19 pandemic, including periods of heightened inflation, and below readings recorded last year when President Donald Trump introduced a new round of tariffs.
"Lower-income consumers exhibited a particularly strong sentiment increase, consistent with the fact that gasoline comprises a larger share of their budgets," said Joanne Hsu, the director of the Surveys of Consumers.
“Even with June’s early gains, however, views of the economy are still relatively dour,” she added.
"Consumers remain focused on kitchen table issues. They feel burdened by the recent escalation in inflation and worry that higher inflation could remain stubborn going forward, particularly in the short run."
Lower fuel costs also contributed to a modest decline in inflation expectations, although the outlook remains heavily dependent on developments in the Middle East and energy markets.
Consumers now expect inflation to average 4.6% over the next year, down from 4.8% in May. Longer-term inflation expectations also eased, with the five-year outlook falling to 3.4% from 3.9%.
Despite the moderation in expectations, inflation remains a major concern for households.
Government data released last week showed annual consumer inflation climbed above 4% in May for the first time in three years, increasing pressure on family budgets and weighing on public perceptions of economic conditions.
Higher inflation has significantly reduced expectations that the Federal Reserve will cut interest rates this year. Financial markets are instead pricing in the possibility of tighter monetary policy, although economists generally believe the threshold for a rate increase remains high unless energy prices trigger broader inflationary pressures.
Attention is now turning to next week's Federal Reserve policy meeting, where officials are widely expected to leave the benchmark federal funds rate unchanged within a range of 3.50% to 3.75%.
While policymakers are not expected to raise rates immediately, investors will closely monitor the central bank's guidance for signs that it is moving away from its previous easing bias as inflationary risks remain elevated.
