Consumer Sentiment Climbs Off Record Low as Gas Prices Ease

Quick Facts

The University of Michigan’s preliminary sentiment index rose to 48.9 in June from a record low of 44.8 in May, a 9% gain that beat the 46.1 forecast.
National average gas prices dropped from $4.56 to $4.12 per gallon over three weeks, the primary driver of improved consumer mood.
Annual inflation hit 4.2% in May, the highest since April 2023, while real wages fell 0.7% year-over-year for the second straight month.

Consumer sentiment rose in June for the first time since January, snapping a four-month slide tied to war-driven energy costs. The University of Michigan’s preliminary index climbed to 48.9 from May’s 44.8, which stood as the lowest reading in the survey’s seven-decade history, surpassing lows recorded during the 1970s stagflation, the 2008-09 financial crisis, and the pandemic.

Despite the rebound, June’s reading is the second-lowest on record. Sentiment sits 13% below January’s pre-war level and 19% below a year ago.

What Moved the Number

Falling gas prices drove the shift. The national average for a gallon of regular dropped from $4.56 on May 21 to $4.12 by early June, according to AAA, as crude oil held below $100 per barrel. That provided the first sustained price relief since the U.S.-Israeli coalition attacked Iran on Feb. 28, 2026, triggering retaliatory strikes across Middle Eastern oil infrastructure.

“This month, consumer sentiment ticked up about four index points, or 9%, with consumers experiencing some relief due to the early-month easing in gasoline prices,” said Joanne Hsu, director of Surveys of Consumers at the University of Michigan.

The relief is partial. Gas prices remain roughly a dollar per gallon above pre-war levels. Year-over-year, regular gasoline is up 40.5%. The Iran conflict, which led to what the International Energy Agency called the “largest supply disruption in the history of the global oil market,” cut global oil output by 10.1 million barrels per day in March alone.

Inflation Stays Elevated

The Bureau of Labor Statistics reported that the Consumer Price Index rose 0.5% in May on a seasonally adjusted basis, pushing the annual rate to 4.2%. That marks the first time inflation has topped 4% in three years. Energy prices accounted for more than 60% of the overall CPI increase in May, rising 3.9% for the month and 23.5% over the past year.

Average hourly earnings grew 3.4% year-over-year, trailing the 4.2% inflation rate. Real purchasing power fell 0.7% annually, the second consecutive month of negative real wage growth.

Consumers expect inflation to run at 4.6% over the next year, down slightly from May’s 4.8% projection. Longer-run expectations covering five to ten years fell to 3.4% from 3.9%, though that figure still sits above the 2.8% to 3.2% range seen throughout 2024.

Expert Views on the Road Ahead

Hsu cautioned against reading too much into the improvement. “Consumers are still seeing a lot of risks on the horizon so overall, consumers still aren’t feeling great, despite this recent pickup,” she said. Households “feel burdened by the recent escalation in inflation and worry that higher inflation could remain stubborn going forward, particularly in the short run.”

Mark Zandi, chief economist at Moody’s Analytics, said “the damage has already been done” and warned that even a swift resolution to the Iran conflict would not quickly restore consumer confidence eroded by months of high prices.

Goldman Sachs chief U.S. economist David Mericle projected that inflation will fall close to 2% in 2027, “barring additional supply shocks,” as overall inflation drivers have softened. The Federal Reserve is not expected to cut rates in 2026, according to J.P. Morgan Wealth Management, which noted the central bank will likely shift to a neutral stance under new Fed Chair Kevin Warsh.

The Michigan survey interviews ran from May 19 through June 8, before President Trump stated the U.S. and Iran were “very close” to a deal. Any progress toward a ceasefire or oil market normalization could push sentiment higher in July’s reading.