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WASHINGTON — U.S. consumers are becoming more confident that price pressures will ease considerably over the next 12 months, with a survey on Friday showing their one-year inflation expectations falling in January to the lowest level since the spring of 2021.

But the road to low inflation will be bumpy as other data on Friday showed import prices unexpectedly increasing in December after five straight monthly decreases, boosted by higher costs for natural gas and food. Overall inflation is retreating as the Federal Reserve’s aggressive interest rate increases cool demand, and bottlenecks in the supply chain ease.

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“The Fed will be happy to see short-term expectations reverting back to more normal levels,” said Shannon Seery, an economist at Wells Fargo in New York. “That all supports views inflation is indeed slowing, but it’s going to take some time for it to get back to the 2% target that the Fed is looking for.”

Year-ahead inflation expectations dropped to a preliminary reading of 4.0% this month from 4.4% in December, the University of Michigan Surveys of Consumers showed. The fourth straight monthly decline pushed inflation expectations to the lowest reading since April 2021. Twelve-month inflation expectations remain well above the 2.3%-3.0% range seen in the two years prior to the COVID-19 pandemic.

Five-year inflation expectations edged up to 3.0% from 2.9% last month, staying within the narrow 2.9%-3.1% range for 17 of the last 18 months. The survey came on the heels of government data on Thursday showing consumer prices fell for the first time in more than 2-1/2 years in December.

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Subsiding price pressures and improving inflation expectations are seen allowing the U.S. central bank to further scale back the size of its interest rate hikes next month.

The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007. In December, it projected at least an additional 75 basis points of hikes in borrowing costs by the end of 2023.

Financial markets have priced in a 25-basis point rate increase at the Fed’s Jan. 31-Feb. 1 meeting, according to CME’s FedWatch Tool. With inflation cooling, consumers’ spirits perked up. The University of Michigan’s preliminary January reading on the overall index of consumer sentiment came in at 64.6, up from 59.7 in the prior month.

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Economists polled by Reuters had forecast a preliminary reading of 60.5. U.S. stocks have been regaining ground on hopes of smaller rate increases from the Fed, contributing to the improvement in sentiment.

Stocks on Wall Street were mixed on Friday. The dollar was little changed against a basket of currencies. U.S. Treasury prices were mixed.

IMPORT PRICES REBOUND

Despite the encouraging signs, the battle against inflation if far from being won. In a separate report on Friday, the Labor Department said import prices rebounded 0.4% last month after declining 0.7% in November. Economists had forecast import prices, which exclude tariffs, falling 0.9%.

In the 12 months through December, import prices increased 3.5% after rising 2.7% in November.

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Imported fuel prices rose 0.6% after falling 3.7% in November. The first monthly rise since June 2022 reflected a 59.5% surge in natural gas prices as a cold spell gripped North America. There has also been strong demand for liquefied natural gas from Europe, which contributed to the jump. That offset a 2.7% drop in petroleum prices.

“The reversal of natural gas prices should make the January import price report more benign than December’s, but crude oil prices have risen somewhat from mid-December to mid-January, which will provide something of an offset to this relief from lower natural gas prices,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

The cost of imported food rose 0.4%. Excluding fuel and food, import prices rebounded 0.4%, posting their first monthly gain since April 2022. These so-called core import prices dropped 0.6% in November.

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Though the dollar gained 5.6% against the currencies of the United States’ main trade partners in 2022, it struggled as the year ended. The dollar’s depreciation on a trade-weighted basis has continued into the new year, which could keep core import prices up.

“Future inflation developments will be influenced in part by changes in the dollar, and the recent dollar depreciation likely has put some upward pressure on import prices,” said Daniel Silver, an economist at JPMorgan in New York.

There were also gains in prices of imported capital goods and motor vehicles. Prices of consumer goods, excluding automotives, rebounded 0.2%. They were driven by both long-lasting manufactured goods and nonmanufactured consumer goods.

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The cost of imported goods from China dipped 0.1%. Prices of imports from Canada and Mexico also fell. But prices of Japanese imports edged up 0.1%.

The Labor Department also reported that export prices dropped 2.6% in December, declining for a sixth straight month. Prices for agricultural exports fell 2.4%, pulled down by lower prices for corn, soybeans, meat and wheat. Prices for vegetables and fruit exports rose.

Nonagricultural export prices fell 2.7%, reflecting lower prices for industrial supplies and materials, which offset higher prices for capital goods, automotive vehicles and nonagricultural foods.

Export prices rose 5.0% year-on-year, the smallest gain since January 2021, after increasing 6.1% in November.

(Reporting By Lucia Mutikani; Editing by Toby Chopra and Andrea Ricci)