WASHINGTON (Reuters) -U.S. consumer sentiment improved in July, and while inflation expectations continued to decline, households still saw substantial risk of price pressures increasing in the future.

The University of Michigan's Surveys of Consumers on Friday said its Consumer Sentiment Index rose to 61.8 this month from a final reading of 60.7 in June. Economists polled by Reuters had forecast the index would increase to 61.5.

"Consumers are unlikely to regain their confidence in the economy unless they feel assured that inflation is unlikely to worsen, for example if trade policy stabilizes for the foreseeable future," Joanne Hsu, the director of the Surveys of Consumers, said in a statement. "At this time, the interviews reveal little evidence that other policy developments, including the recent passage of the tax and spending bill, moved the needle much on consumer sentiment."

Consumers' 12-month inflation expectations dropped to 4.4% from 5.0% in June. Long-run inflation expectations fell to 3.6% from 4.0% last month.

"Both readings are the lowest since February 2025 but remain above December 2024, indicating that consumers still perceive substantial risk that inflation will increase in the future," Hsu said.