Consumers Feel Better About the Economy as Prices Moderate

Consumers in the U.S. are more confident about the economy, even as wholesale prices rose more than expected in July.

Consumer sentiment is expected to come in at 71.2 points in August, down slightly from 71.6 in July, according to preliminary results from the University of Michigan Survey of Consumers released Friday.

The reading represents a 22.3% year-over-year increase in consumer sentiment and a 42% jump from its all-time low in June 2022 — a sign that shoppers are more at ease with economic conditions compared to earlier this year.

“In general, consumers perceived few material differences in the economic environment from last month, but they saw substantial improvements relative to just three months ago,” said Joanne Hsu, the survey’s director.

Meanwhile, the Producer Price Index, which gauges the costs producers receive for their goods and services, rose a modest 0.3% in July, up slightly from June's unchanged level, the Bureau of Labor Statistics reported Friday.

It was the largest monthly increase since January. Economists surveyed by Dow Jones expected an upward move of 0.2%, according to CNBC. Prices excluding food and energy rose 2.7% from a year ago, but were unchanged from June. 

The changes comes on the heels of Thursday’s Consumer Price Index release, which showed that the CPI increased 3.2% in the 12 months through July, compared with 3% in the year through June — a smaller increase than economists had expected. The CPI is a measure of the costs of goods and services to consumers.

The numbers show that the Federal Reserve Bank's interest rate hikes are beginning to tamp down inflation, and that consumers are feeling the drop. The Fed embarked on its monetary tightening campaign in March 2022 in an attempt to wrangle inflation to its 2% target.

The central bank in July raised rates by a quarter percentage point to between 5.25% to 5.5%, a 22-year-high. Policymakers are expected to pause increases once again after their September meeting.