The sentiment among U.S. consumers experienced a notable increase in December, surpassing initial estimates. This surge was driven by heightened expectations for a cooling inflation in 2024.

According to data from a survey conducted by the University of Michigan and released on Friday, the final reading of the consumer sentiment index rose to 69.7 in December from 61.3 in November. Economists polled by The Wall Street Journal had expected the indicator to be at 69.4, which was the same as the preliminary estimate made in mid-December.

Survey director Joanne Hsu stated that this reading reversed the declines witnessed over the previous four months, primarily due to a more positive outlook on inflation among consumers. The data revealed that consumers' expectations for inflation decreased to 3.1% in December from 4.5% the previous month, marking the lowest level since March 2021. The slowdown in inflationary pressures prompted Federal Reserve Chair Jerome Powell to shift his focus from monetary tightening to considering when to reduce interest rates during the central bank's recent meeting.

This month, all five index components of the University of Michigan indicator showed improvement, driven by more optimistic expectations for business conditions. According to Hsu, this simultaneous increase in all components has only occurred in 10% of readings since 1978.

Hsu added, "The index is now just shy of the midpoint between the prepandemic reading and the historic low reached in June 2022."

The survey revealed that sentiment improved across all age, income, education, geographic, and political identification groups.

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