U.S. consumer sentiment rose in July to the highest since October 2021 as inflation continued to ease.

The sentiment index climbed to 71.6 from 64.4 last month, according to the final July reading from the University of Michigan. The median estimate in a Bloomberg survey of economists called for 72.6, in line with the group’s print earlier in the month.

Consumers expect prices will climb at an annual rate of 3.4% over the next year, up slightly from the 3.3% expected in June, data Friday showed. They still see costs rising 3% over the next five to 10 years.

Americans are growing more optimistic about the economy as wage gains are finally outpacing inflation and unemployment remains low. Separate data out Friday showed key metrics of U.S. inflation and wages eased in recent months, adding to growing optimism the economy can avoid a recession.

The share of consumers blaming high prices for eroding their living standards fell to 36%, the lowest reading in a year and a half, according to the report. However, this measure for lower-income consumers rose in the month.

“This re-emerging divergence between high- and low-income consumers, if sustained, restores the typical pattern in which higher-income consumers have more favorable sentiment,” Joanne Hsu, director of the survey, said in a statement. “The months ahead will reveal if the recovery in sentiment will be shared across the income distribution.”

The final July reading was somewhat weaker than the one earlier in the month. Since then, gas prices have risen significantly due to a combination of unexpected refinery outages and lower-than-normal stockpiles in key storage hubs, which may risk reigniting inflation.

The current conditions gauge climbed to 76.6 from 69 in June, while a measure of expectations also advanced, the university said. Buying conditions for durable goods improved to the highest level in two years.

—With assistance from Kristy Scheuble.

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