Inflation outlook tumbles to pre-tariff levels in latest University of Michigan survey

Consumers' worst fears about tariff-induced inflation have receded, though they are still wary of price increases to come, according to a University of Michigan survey Friday.

The university's closely watched Survey of Consumers for July showed overall sentiment increased slightly, rising 1.8% from June to 61.8, exactly in line with the Dow Jones consensus estimate and at its highest level since February. Questions on current conditions and future expectations produced monthly gains as well.

On inflation, the outlook at both the one- and five-year horizons both tumbled, falling to their lowest levels since February, before President Donald Trump made his “liberation day” tariff announcement on April 2.

The one-year forecast plunged to 4.4%, down from 5% in June and well off the 6.6% level in May, which was the highest reading since late 1981. For the five-year outlook, the expectation slid to 3.6%, down 0.4 percentage point from June.

“Both readings are the lowest since February 2025 but remain above December 2024, indicating that consumers still perceive substantial risk that inflation will increase in the future,” survey director Joanne Hsu said in a statement.

Indeed, the respective outlooks in December were for 2.8% and 3%, largely in line with readings throughout 2024, before Trump took office in January.

Worries peaked over inflation as Trump levied 10% across-the-board tariffs as well as so-called reciprocal duties that he has backtracked on pending negotiations. However, in recent days he has announced tariffs on individual products such as copper, raising the specter of future price increases.

The readings are below their long-term averages, with the headline sentiment index down 6.9% from a year ago and 16% from December. The expectations reading fell 14.8% from July 2024, though the current conditions index was 6.5% higher.