US consumers’ inflation expectations for the next year fell to 4% in August from 4.3% in July, coming in below the 4.3% forecast, according to the University of Michigan’s preliminary Survey of Consumers released Aug. 16, 2025. The decline was broad-based across income groups, although lower-income households continued to report greater inflation concerns. Long-run expectations for the next five to 10 years remained stable at 3.0%, suggesting recent price increases have not become entrenched in consumer psychology. The reading may give the Federal Reserve more scope to consider interest-rate cuts, particularly if other data show a cooling labor market, though policymakers are expected to remain data-dependent ahead of the September meeting. Actual inflation fell to 3.2% in July from a peak of 9.1% in June 2022. Overall consumer sentiment rose to 72.1 from 71.6 in July but remained below pre-pandemic levels. Lower expectations could reduce pressure on households to accelerate purchases, potentially moderating spending, while high food and rent costs remain concerns. Consumers expect gasoline prices to rise slightly over the coming year, but more slowly than earlier in 2025. The preliminary August result is down from 4.2% in June and remains above the 2.9% recorded in early 2021, but it points to easing short-term price concerns. The survey is a monthly measure of consumer attitudes and expectations that economists and policymakers use as a leading indicator of consumer behavior and confidence. Inflation expectations matter because they can influence spending, saving and wage negotiations and, if they become unanchored, contribute to a self-reinforcing cycle of higher prices. The data is a timely signal for policymakers and markets during the final stretch of 2025, although it may be revised.