Why Is Consumer Sentiment Up? Inflation Softens A Bit In This Sector

Consumer confidence is up a tad, according to a University of Michigan Survey.

The final results for September's consumer sentiment index show a 0.7% month-over-month spike, while the consumer expectations index remains unchanged for the month.

The projected rise in consumer confidence can largely be attributed to the decline in the energy index, which has fallen by 9.6% in the past two months, with gasoline falling by 10.6% in August.

Unfortunately, food inflation continued to surge. Food at home inflation is up 13.5%, and food away from home is up 8%, for the twelve months ended August.

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As inflation began to soften in July and August, buying conditions for durables and the one-year economic outlook continued lifting from the low readings earlier in the summer, but these gains were largely offset by modest declines in the long-run outlook for business conditions, commented Surveys of Consumers Director, Joanne Hsu.

Why It Matters: With consumer sentiment back to levels unseen since 2012, it is clear that high inflationary pressures in food and energy have dramatically weakened the consumers' attitude when it comes to purchasing power.

Surprisingly, the consumer's expectations of current economic conditions rose by 1.9% month-over-month, as the preliminaries were only forecasting a rise of 0.5%.

A plausible explanation for this can be that the median expected year-ahead inflation rate declined to 4.7%, the lowest reading since last September.

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Since the Fed is aggressively hiking interest rates to soften inflation, consumers are already seeing demand in the housing market slow in the more recent months. 
When the housing market slows, it impacts more sectors of the economy than most would expect, one, in particular, is the prices for commodities such as lumber, which has fallen to new 52-week lows in August.