Consumer sentiment confirmed its mid-month reading and soared 14% in December, reversing all declines from the previous four months. These trends are rooted in substantial improvements in how consumers view the trajectory of inflation. All five index components rose this month, which has only occurred in 10% of readings since 1978. Expected business conditions surged over 25% for both the short and long run. All age, income, education, geographic, and political identification groups saw gains in sentiment this month. The index is now just shy of the midpoint between the pre-pandemic reading and the historic low reached in June 2022.

Year-ahead inflation expectations plunged from 4.5% last month to 3.1% this month. The current reading is the lowest since March 2021 and sits just above the 2.3-3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations fell from 3.2% last month to 2.9% this month, staying within the narrow 2.9-3.1% range for 26 of the last 29 months. Long-run inflation expectations remain elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic.