Americans are increasingly feeling better about inflation.
The latest consumer sentiment survey from the University of Michigan revealed consumers expect inflation to sit at 3.1% in a year, a noted decrease from last month's expectation of 4.5%. December's reading is the lowest since March 2021 and is slightly above the 2.3% to 3.0% range seen in the two years before the pandemic.
Expectations for long-run inflation fell to 2.8%, down from November's 3.2%, which was the highest reading since 2011.
The overall consumer sentiment index surged 13% in December after four straight months of declines. Sentiment sat at 69.4, above November's reading of 59.8 and the highest reading since August.
Stocks rallied after the print, with all three of the major averages reversing losses for the day and pushing into positive territory.
The upbeat read on the economy from consumers matches other recent data. Gas prices just hit their lowest levels of 2023. Inflation is falling faster than expected, and Friday's November jobs report showed unemployment declined after ticking higher the past several months.
The latest reading of the Consumer Price Index (CPI) showed consumer prices were unchanged from the month prior in October. Meanwhile, the Personal Consumer Expenditures (PCE) index, the Federal Reserve's preferred inflation gauge, showed prices increasing at their slowest pace in more than two years.
With the labor market cooling, but still adding jobs, and inflation falling, markets have increasingly bet that the inflation can fall to the Fed's 2% goal without the economy tipping into recession.
"While the lower inflation readings of the past few months are welcome, that progress must continue if we are to reach our 2% objective," Fed Chair Jerome Powell said in a speech on Dec. 1.
Josh Schafer is a reporter for Yahoo Finance.
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