U.S. consumer sentiment fell in May as higher gasoline prices dampened enthusiasm, a report showed on Friday.

The University of Michigan's final May index of consumer sentiment read 79.1, down from April's final reading of 87.4, said sources who saw the subscription-only report.

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The median forecast of Wall Street economists polled by Reuters was for a 79.0 reading.

The survey's index of current conditions fell to 96.1 in May from 109.2 in April, while consumer expectations fell to 68.2 from 73.4 in April.

Consumers' inflation expectations, over one- and five-year horizons, also rose. The University of Michigan's one-year U.S. inflation expectation median rose to 4.0 percent in May from 3.3 percent in April. The University of Michigan's median expectation for U.S. inflation over a five-year horizon rose to 3.2 in the final May reading.

"There were marginal upward revisions in the final May consumer confidence numbers from the preliminary May numbers so that implies that the sharp deterioration in sentiment from April in the first set of numbers was genuine and lasting," said Pierre Ellis, senior economist at Decision Economics.

"Higher gasoline prices are taking a toll on consumer sentiment," said Tony Crescenzi, chief bond market strategist at Miller, Tabak and Co.

Still, Ellis cautioned said the volatility of the indexes somewhat reduced "the credibility of the numbers in predicting" what consumers would actually do with their money.

INFLATION EXPECTATIONS

Ellis said the further marginal deterioration in the two measures of median inflation expectations would trouble Federal Reserve policy-makers, though other factors could lead the Fed to discount it.

Still, he said, "The general background is one that makes the Fed wonder whether the markets see the Fed as credible (on fighting inflation) and that works to promote a June rate increase."

Consumer spending accounts for about two-thirds of all U.S. economic activity, but in recent years confidence measures have been a weak guide to actual spending plans.

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