Consumer Sentiment Surges, Inflation Outlook Plunges as Tariff Fears Wane

Consumer sentiment registered a sizable shift this month as the public appeared to become more optimistic about the economy and less worried about inflation amid improving global trade conditions.

The University of Michigan’s preliminary Consumer Sentiment Index, released on June 13, surged to 60.5, up by 16 percent from May and higher than the consensus forecast of 53.5. However, it was still down by more than 11 percent from a year ago.

“Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed,” Joanne Hsu, director of surveys of consumers, said in the report.

The monthly survey recorded across-the-board bouncebacks, with the indexes for current economic conditions rising by 8.1 percent and future expectations climbing by nearly 22 percent.

Short- and long-term inflation expectations improved significantly in early June.

The one-year inflation outlook declined to 5.1 percent from 6.6 percent in the previous month. The five-year forecast slowed to 4.1 percent from 4.2 percent.

“Consumers’ fears about the potential impact of tariffs on future inflation have softened somewhat in June,” Hsu said.

Improving sentiment comes as the international trade situation—which had been upended following President Donald Trump’s April 2 announcement of sweeping tariffs—has stabilized.

After this week’s two-day meeting in London, the United States and China established a draft trade agreement. According to Trump, Beijing will continue to export rare earth minerals, and Chinese students will be able to attend U.S. colleges and universities. The president also verified that U.S. tariffs will be set at 55 percent and China’s levies will be at 10 percent.

Market observers are watching the calendar closely as it flips to July. This is the deadline for the president’s 90-day pause on reciprocal tariffs for U.S. trading partners.

Trump, speaking to reporters at the John F. Kennedy Center for the Performing Arts in Washington on June 11, confirmed that the administration will soon be sending letters to other countries.

“At a certain point, we’re just going to send letters out, and I think you understand that, saying this is the deal, you can take it or leave it,” the president said.

Appearing before the House Ways and Means Committee, Treasury Secretary Scott Bessent told lawmakers that Trump is “highly likely” to “roll the date forward” to permit more trade negotiations.

“If someone is not negotiating, then we will not,” Bessent said.

The White House is engaged in trade negotiations with 18 major partners, he said.

Data Fueling Optimism

Various consumer surveys had indicated rebounding confidence in the broader economy.

In May, The Conference Board’s Consumer Confidence Index advanced after five straight months of declines. The headline index revealed brighter outlooks for business conditions, job prospects, and future income.

“The rebound was already visible before the May 12 U.S.–China trade deal but gained momentum afterward,” said Stephanie Guichard, a senior economist for global indicators at The Conference Board.

Likewise, the RealClearMarkets/TIPP Economic Optimism Index surged by 2.7 percent from May to June. Key gauges of the monthly survey—the six-month economic outlook, the six-month personal financial outlook, and confidence in federal economic policies—rebounded this month.

The Federal Reserve Bank of New York’s one-year inflation expectations also fell sharply to 3.2 percent in May from 3.6 percent in April.

This trend could be the norm moving forward, according to Bill Adams, chief economist at Comerica Bank.

“Business and consumer sentiment are likely to improve in the second half of 2025 if the public conversation shifts away from tariffs toward tax cuts,” Adams said in a note emailed to The Epoch Times.

“Stabilization of trade policy would also be helpful for encouraging businesses to move forward with longer-term growth plans.”

Recent economic data indicate that consumers may be right in trimming their inflation projections.

The headline annual inflation rate ticked up to a lower-than-expected 2.4 percent in May, and the monthly consumer price index rose by 0.1 percent.

Wholesale prices rose at a smaller-than-expected pace of 0.1 percent in May. Economic observers have been focusing on the producer price index, as it can serve as a precursor to consumer inflation because it is early in the supply chain.

Core readings of both indexes, which strip out the volatile food and energy components, came in below consensus estimates.

These numbers suggest that potential adverse tariff effects have yet to renew price pressures. According to Adams, companies might be absorbing the added costs.

“If businesses think demand is too weak for them to pass on the cost of the tariffs, they will have to absorb the costs. That would eat into profits,” he said. “When profits fall, capital spending and hiring tends to be weaker too, which would slow the overall economy.”

Looking ahead to growth prospects, the Atlanta Federal Reserve’s GDPNow Model, a running estimate of gross domestic product, projects that the economy will expand by 3.8 percent in the second quarter. If accurate, this would be up from the 0.2 percent contract at the start of the year.