Consumers Feel Happier but Still Worry About Inflation

Consumer confidence got a rebound headed into summer.

The University of Michigan’s June Consumer Sentiment Index, released Friday (June 27), recorded a 16% surge from May, marking its first increase in six months.

The rise reflects a broad-based improvement across various facets of the economy, with expectations for personal finances and business conditions climbing over 20%.

However, despite June’s gains, sentiment remains 18% below December post-election levels, with consumers still voicing concerns about a potential economic slowdown and persistent inflation risks.

Inflation expectations presented a more encouraging trend. Year-ahead expectations fell from 6.6% in May to 5% in June, while long-run expectations decreased from 4.2% to 4%, the lowest in several months.

Consumers’ concerns about the impact of tariffs on future inflation softened, although the overall perception of inflation risks remains elevated compared to the latter half of 2024.

The University of Michigan’s updated historical analysis showed that while long-run inflation expectations climbed sharply during the first four months of 2025, they eased in May and June, aligning with mid-2022 peak readings. However, uncertainty remains due to evolving economic policies.

A Mixed Picture

This improvement in sentiment contrasts with The Conference Board’s latest report, which found a decline in consumer confidence in June after May’s gains. The Conference Board’s index fell from 98.4 in May to 93 in June, with forward-looking expectations dropping below the recession warning threshold of 80, landing at 69.

Additionally, while inflation expectations in that report eased to 6% over 12 months, high prices, tariffs and interest rate concerns continue to weigh on consumers’ outlook.

While the University of Michigan data indicated a rebound in sentiment and a moderation in inflation expectations, overall consumer sentiment remains cautious amid economic uncertainty, tariff concerns and evolving policy dynamics.

As tariffs became a reality on the global stage, a May PYMNTS Intelligence report, “Shoppers Pull Back as Half of US Consumers Expect Tariffs to Raise Prices at Double the Rate of Inflation” found that across more than 2,300 individuals surveyed, only 35% of consumers expected mostly or completely positive consequences from tariffs, while 44% expected mostly or completely negative. The most foreseen negative impact was tied to inflation, as 60% of consumers said they anticipated price increases.

In the meantime, there’s no guarantee that consumers’ confidence will translate to merchants’ registers. The same day that the University of Michigan’s data came out, the Bureau of Economic Analysis found that real disposable income was pressured in May and declined for the first time in several months.

As income declined, so too did spending. Personal consumption expenditures dropped 0.1% in nominal terms, the second decrease seen so far this year, after the 0.2% posted in January. Durable goods took the biggest hit, down 1.8%, while nondurables declined at a rate of 0.2%.

Trade-offs may be the order of the day, and there are some signs that big-box and discount retailers may gain at the expense of their peers. Dollar General has seen a surge in high-income consumers.

“We saw the highest percent of trade-in customers we’ve had in the last four years,” CEO Todd Vasos said during a first-quarter earnings call June 3, referring to shoppers from middle- and high-income brackets seeking value.