For the first time since late last year, consumer sentiment improved on the marquee gauge of household moods in America.

The preliminary read on the University of Michigan headline for June was 60.5 in Friday’s release, well ahead of the 53.6 consensus.

As the figure below shows, the 16% jump from the prior month was the most pronounced in years.

“Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed,” survey director Joanne Hsu said.

Still, consumers are overtly cautious. Hsu went on to describe subdued views of “business conditions, personal finances, buying conditions for big ticket items, labor markets and stock markets,” measures of which are still “well below” where they stood six months ago.

Recall that the last few Michigan surveys were among the worst in four decades taking into account both sharp drops on the sentiment gauges and record-setting increases on the inflation expectations series. In Friday’s release, the year-ahead measure of households’ inflation outlook dropped to 5.1% from 6.6% in the final reading for May.

As the figure shows, that was the largest month-to-month decline since 2001. Note that the preliminary read on that metric for last month was a truly harrowing 7.3%. The yellow dot in the chart suggests the US-China tariff truce on May 12 and subsequent benign developments on the trade front were good for the biggest MoM drop in year-ahead inflation expectations on record.

The five- to 10-year inflation outlook moderated slightly, falling to 4.1% from 4.2% in the final read for May. That’s still far, far too high, which is to say 0.8ppt above levels which spooked the Fed three years ago.

The huge drop on the short-term measure capped a week of encouraging inflation news. Both CPI and PPI undershot expectations suggesting, perhaps, that the inflation resurgence many feared would accompany Donald Trump’s trade war may not materialize after all.

But it’s too early to celebrate. As Hsu put it, “inflation expectations remain above readings seen throughout the second half of 2024, reflecting widespread beliefs that trade policy may still contribute to an increase in inflation in the year ahead.”