Gas prices in Los Angeles have risen to the highest amount since November, with an average of 5.43 USD for regular gasoline.
Rising gas prices haven’t taken their toll on the American consumer just yet, amid growing optimism that inflation is easing, according to the latest consumer sentiment survey from the University of Michigan.
The university’s latest consumer survey released Friday showed that Americans’ expectation of inflation rates in the year ahead fell to a 3.1% rate in September, down from 3.5% in the prior month, marking “the lowest since March 2021 and just above the 2.3-3.0% range seen in the two years prior to the pandemic,” according to a statement.
Meanwhile, inflation expectations in the next five to 10 years dropped to a 2.7% rate, “falling below the narrow 2.9-3.1% range for only the second time in the last 26 months.”
That’s welcome news for the Federal Reserve, which is closely monitoring Americans’ views and expectations on inflation as it presses on with its historic inflation fight. Americans appear confident that inflation will drift down to levels they’ve seen in the past — but if consumers become used to higher prices, it complicates the Fed’s job of slowing inflation.
“The drop in five-to-10-year inflation expectations … is a seriously welcome development,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in an analyst note. “We have argued for some time that a clear downshift in inflation expectations was overdue, and this decline is a big step towards normalisation.”
Though Shepherdson cautioned that the latest reading is a preliminary number, he notes that “it could be revised up in the final reading as people respond to higher gas prices. But, for now, it looks good.”
Gas prices are highly visible indicators of inflation, and elevated prices easily sour consumers’ moods. Sentiment fell to its lowest level on record last summer when gas prices topped $5 a gallon and inflation reached a four-decade high. The national average for regular gasoline stood at $3.87 a gallon on Friday, according to AAA, seven cents higher than a week ago and 17 cents higher than the same day last year.
Consumer sentiment overall tracked by the University of Michigan edged down in September from the prior month by 1.8 points, mostly due to gloomier attitudes about the economy’s current situation. The survey’s index of current economic conditions deteriorated from a reading of 75.7 in August to 69.8 this month.
While Americans’ views about the economy’s future improved somewhat in September, consumers are not necessarily feeling optimistic — and concerns are starting to surface about the possibility of a government shutdown.
“Both short-run and long-run expectations for economic conditions improved modestly this month,” said the University of Michigan’s Surveys of Consumers Director Joanne Hsu in a release.
“On net, consumers remain relatively tentative about the trajectory of the economy. So far, few consumers mentioned the potential federal government shutdown, but if the shutdown comes to bear, consumer views on the economy will likely slide, as was the case just a few months ago when the debt ceiling neared a breach,” she said, referring to the plunge in consumer sentiment in May when congressional lawmakers battled over raising the federal government’s debt ceiling, almost prompting a US default.
While a combination of elevated gas prices and a government shutdown could weigh on Americans’ mood, there’s a chance gas prices may edge lower in the fall due to weaker demand.
“Oil costs are putting upward pressure on pump prices, but the rise is tempered by much lower demand,” said Andrew Gross, AAA spokesperson, in a statement. “The slide in people fueling up is typical, with schools back in session, the days getting shorter, and the weather less pleasant. But the usual decline in pump prices is being stymied for now by these high oil costs.”