(Bloomberg) -- US consumer sentiment improved in August for the first time in five months as slower inflation and prospects for Federal Reserve interest-rate cuts helped lift expectations about personal finances.

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The final August sentiment index rose to 67.9, from 66.4 in July, according to the University of Michigan. The preliminary reading was 67.8.

Consumers expect prices will climb at an annual rate of 2.8% over the next year, down from the 2.9% expected last month and the lowest since the end of 2020, the data out Friday showed. They see costs rising 3% on average over the next five to 10 years.

While cooling price pressures are helping to stabilize sentiment, consumers remain hamstrung by still-elevated borrowing costs, less hiring and a higher cost of living. The university’s confidence measure is well short of pre-pandemic levels.

As a result, buying plans for durable goods such as cars and appliances slipped to the lowest level since the end of 2022. While a separate report earlier Friday showed solid consumer spending at the start of the third quarter, discretionary income barely rose and the saving rate dropped to a two-year low.

That helps explain why consumers view their finances as currently stretched. The university's report showed sentiment about current personal finances held at the lowest level since October and well below the historical average.

“The index of news heard about the economy deteriorated over 20% this month,’’ Joanne Hsu, director of the survey, said in a statement. “In particular, about 25% of consumers mentioned hearing negative news about unemployment, the highest reading since November 2023.”

At the same time, 48% of respondents said they expect interest rates to fall in the coming year, the largest share since 1982.

The August index was also influenced by politics. The survey showed more optimism among Democrats after President Joe Biden was replaced on the party’s ticket by Vice President Kamala Harris. Confidence among Republicans sank to the lowest since November.

A measure of expectations rose to 72.1 this month from 68.8 in July. Consumers’ outlook for their personal finances rose to a three-month high. The current conditions gauge fell to 61.3, the weakest since the end of 2022.

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