The latest University of Michigan Consumer Sentiment Index jumped in January by 13% to 78.8, the highest mark since July 2021. The index reading came well above economist expectations of 70.1. Consumer sentiment also rose sharply in December, making the cumulative climb the highest two-month jump since 1991. Consumers' inflation expectations continue to softened to 2.9%, and is now back into a pre-pandemic range.

Yahoo Finance Anchors Seana Smith and Brad Smith break down the latest development and what it could mean for the economy moving forward.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

SEANA SMITH: And we're looking at a huge jump in the month of January, reaching the highest level that we have seen since 2021. Far exceeding the expectations from Wall Street. And taking a look into exactly what we're seeing from this index, rising 9.1 points to 78.8. Putting that in perspective, it's the biggest month over month jump that we have seen since 2005.

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And wrapping in inflation expectations into all of this, and this the latest here from the University of Michigan. But inflation expectations also coming in a bit lower here. Consumers expecting prices to climb at a rate of 2.9% on a year over year basis. That's down from 3.1% a month earlier. So more positive here on some progress in terms of inflationary pressures, therefore leading to higher confidence, and at least consumer sentiment at this point in the new year.

BRAD SMITH: Yeah, it's really going to be interesting, especially going forward where among consumers, the sentiment continues to move in specific categories. I mean, we've gotten a good reading on the consumer over the course of this week, whether it be retail sales, whether it be some of the earnings that have started to trickle through.

And one of the interesting kind of takes that we had even received earlier this week from the former CEO of Hudson's Bay, former CEO of Toys R' Us, Jerry Storch, was just in those categories of weakness, that the consumer is still pushing back. And department stores seem like they're still going to suffer in the midst of that. And then additionally, you think about some of those home and appliance stores. They're going to be under pressure as well here.

So that might be one particular sentiment read through where consumers are still pushing back on price. Or just don't need to replenish a refrigerator that they just got two years ago, or a new lawnmower, which spells out bad news perhaps for John Deere, for Toro, even though John Deere has some new artificial intelligence--