US consumer sentiment improves as gasoline prices ease but sentiment remains subdued

US consumer sentiment improved in June from near-record lows as declining gasoline prices and easing geopolitical tensions provided some relief to households still grappling with elevated living costs.

The University of Michigan's consumer sentiment index rose to 49.5 in June from 44.8 in May, exceeding economists' expectations of a reading of 49, according to a Wall Street Journal survey.

The improvement comes after months of depressed sentiment following the Iran conflict, which pushed energy prices sharply higher and reignited inflation concerns.

Survey director Joanne Hsu said consumers were becoming less pessimistic about the long-term economic outlook.

"Expected business conditions over the next five years surged 16% as consumers' worries over long-term consequences of the Iran conflict appear to be easing," Hsu said.

Despite the rebound, sentiment remains subdued.

Hsu noted that confidence remains 13% below its February 2026 level, before the start of the Iran conflict.

Inflation expectations moderate

The improvement in sentiment coincided with signs that inflation pressures may be stabilising.

Data released on Thursday showed that the personal consumption expenditures price index, the Federal Reserve's preferred inflation gauge, rose 4.1% in May from a year earlier.

Some economists believe the reading could represent the peak of the inflation surge linked to the conflict in the Middle East.

Consumers also became slightly less worried about future price increases.

The survey's measure of inflation expectations over the next year eased to 4.6% in June from 4.8% in May.

Long-term inflation expectations declined more sharply, falling to 3.3% from 3.9%.

Federal Reserve officials closely monitor long-term inflation expectations because they can influence wage negotiations and pricing behaviour, potentially making inflation more persistent.

Outside of survey-based measures, market indicators continue to suggest that longer-term inflation expectations remain relatively well anchored.

High prices still weigh on consumers

Even as sentiment improved, elevated prices continue to dominate household concerns.

"The cost of living remains at the forefront of consumers' minds; for the third straight month, over half of consumers spontaneously mentioned that high prices are weighing down their personal finances," Hsu said.

Consumer spending has so far remained resilient despite the squeeze on household budgets.

Recent data showed stronger personal spending growth and robust retail sales in May, suggesting consumers have continued to spend despite higher prices.

Economists have increasingly described the current environment as a K-shaped economy, where higher-income households continue to spend freely while lower-income consumers rely more heavily on savings and credit to maintain spending levels.

Gasoline prices provide some relief

A key driver behind the improvement in sentiment has been the decline in fuel prices.

According to industry data, the national average gasoline price in the United States has fallen to $3.85 per gallon after six consecutive weeks of declines.

Prices are nearly 15% below the peak reached in May.

GasBuddy data showed that gasoline prices fell by an average of 14.1 cents per gallon over the past week.

Several states recorded even larger declines, including Colorado, where prices dropped by 25 cents, Arizona with a 22-cent decline and Ohio with a 21-cent decrease.

The retreat in fuel prices has been aided by easing tensions between the United States and Iran.

Expectations that oil shipments through the Strait of Hormuz will remain uninterrupted have reduced pressure on global energy markets and helped bring down crude oil prices.

The decline in gasoline costs has offered some respite to consumers during the peak summer travel season, helping improve sentiment even as households continue to confront the broader challenge of elevated living expenses.