• Consumer inflation concerns have dropped to their lowest level since early 2022, with only 56% of respondents citing it as their top worry.
  • Economic optimism is building, with 36% expecting improvement compared to 33% last month.
  • Morgan Stanley warns tariff-related price pressures could still emerge as companies exercise pricing power.

Shifting Consumer Sentiment

American consumers are showing their most relaxed attitude toward inflation in nearly three years, according to Morgan Stanley's latest survey data. The percentage of respondents ranking inflation as their primary economic concern has fallen to 56%, marking a significant decline from 60% in August and 63% a year ago.

The survey results, released Wednesday, suggest that the persistent inflation anxiety that has dominated consumer psychology since the post-pandemic price surge may finally be receding. This shift comes amid cooling price increases across several key categories, though housing and services costs remain elevated.

Cautious Optimism Emerges

Beyond the inflation numbers, the survey reveals broader improvements in economic sentiment. Thirty-six percent of respondents now expect the economy to improve in the coming months, up from 33% in the previous survey period. The reading on household financial outlook also showed modest gains, though concerns about job security and wage growth persist.

Morgan Stanley economists noted in their analysis that while the trend is encouraging, the data still reflects a cautious consumer rather than an exuberant one. "We're seeing the beginnings of normalization in consumer psychology, but it's a gradual process," according to people familiar with the bank's internal assessment.

Potential Headwinds Remain

Despite the improving sentiment, Morgan Stanley's research team highlighted several risk factors that could reverse recent gains. The bank specifically warned about potential tariff-related price pressures, noting that companies facing higher import costs might exercise their remaining pricing power rather than absorb the expenses.

This caution comes as trade policy remains a wild card in economic forecasts. Companies across multiple sectors have been quietly preparing contingency plans for potential tariff changes, according to industry sources who spoke on condition of anonymity.

Efforts to reach Morgan Stanley's communications team for additional comment on the survey methodology were unsuccessful by publication time. The bank's latest quarterly results showed continued strong performance with earnings per share of $2.13, marking six consecutive quarters of consistent earnings.

Correction: An earlier version of this article misstated the percentage change in economic optimism. It increased to 36% from 33%, not 32%.