Americans have accumulated trillions of dollars in savings during the pandemic. Today, prices are rising at the fastest pace in decades, and they continue to use their stockpiles to spend.
Commerce Department April personal consumption rose 0.9% Said on fridayThey had to abandon early in the pandemic when Americans shook off high prices to buy tickets for planes, sporting events, and other experiences. Car sales also increased as car buyers surged in cars after a few months of shortages.
Income is also increasing as a result of a strong employment market and the fastest wage growth in decades. However, income has not kept up with rising spending and prices. After-tax income increased 0.3% from the previous month in April and remained flat after considering inflation.
As a result, Americans are spending more by reducing their savings. Households secured only 4.4% of their after-tax income last month. This is the lowest savings rate since 2008.
Record-level government aid during the pandemic, coupled with reduced spending on many leisure activities, has allowed Americans to build up significant reserves for additional savings — according to some estimates. And over $ 2.5 trillion. That cushion may allow consumers to continue spending as prices rise. A snap shot A survey of Americans’ financial status, conducted last fall and released this week by the Federal Reserve Board, found that 78% of respondents felt “at least OK.” This is the highest percentage in the nine-year history of the survey.
However, reliance on savings is unsustainable in the long run. Economists say that many low-income households are probably already running out of savings or will likely do so in the coming months, especially as high gas and food prices continue to be sacrificed. Credit card and similar types of debt balances increased at an annual rate of 35.3% in March. This is the largest monthly increase since 1998. Data from the Federal Reserve..
Tim Quinnlan, Senior Economist at Wells Fargo, said: Private consumption has outpaced most predictors, he said, but is likely to slow in the coming months.
Consumers will not be so relieved immediately from rising prices. Inflation cooled slightly in April, but remained high for nearly 40 years.
Consumer prices have risen 0.2% since March last month, up 6.3% year-on-year, according to a report from the Ministry of Commerce. This decreased from an annual increase of 6.6% in March. The fastest pace of inflation since 1982..
Economists and investors are closely watching the consumer spending price index in the report, which is an alternative to the well-known consumer price index, as the FRB prefers it as an indicator of inflation. The central bank has raised interest rates and announced that it will begin pairing assets to cool the economy and curb inflation.
and Statement released by the White House On Friday, President Biden called the decline in inflation “a sign of progress, despite more work to be done.”
The slowdown in inflation in April was primarily the result of falling prices for gasoline and other energies. Gas prices soared in February and March, mainly due to Russia’s invasion of Ukraine, and then eased somewhat in April.they have Woke up again But the last few weeks could push inflation measures back in May. Food prices have also risen sharply in recent months, a pattern that continued in April.
Eliminating the volatile food and fuel category, consumer prices rose 4.9% year-on-year in April. Its core index, which some economists consider to be a more reliable guide to underlying inflation, has risen 0.3% from the previous month and has remained little unchanged from the rate of increase in March.
The relatively tame rise in core prices in the data released on Friday Sudden acceleration With the equivalent index of the Consumer Price Index report released by the Ministry of Labor this month. However, this difference is primarily a result of the difference in how the two measurements count airfare, and economists said the Fed is unlikely to get much comfort from Commerce Department data.
“My suspicion is that they will probably see a slowdown,” said Omair Sharif, founder of research firm Inflation Insights. He said the core index also slowed in the fall, but rose again at the end of the year, and the Fed was surprised.
Many predictors believe that headline inflation peaked in March, marking the beginning of a gradual cool-down in April. However, recent gas price rebounds can complicate the situation. And even if inflation continues to fall, prices are rising much faster than the Fed’s target of 2%.
According to Quinnlan, the public will not see a slight easing of inflation as much as they celebrate.
“For them, the year-on-year rise in prices is not important,” he said. “That’s: why does a crappy lunch cost $ 12 now?”
Inflation has hit consumer sentiment. Down 10.4 percent in May According to a long-term study at the University of Michigan, it reached its lowest level in more than a decade. But so far, that pessimism hasn’t led to spending cuts.
“Consumers actually had their wallets wide open, at least in the second quarter,” said Kathy Bossjanchitch, chief US economist at Oxford Economics. “I think there are limits in the end. Now we are all tired and just have to travel, but next year is another story.”
Had more spending For the experience Like hotel stays, concerts and haircuts in recent months as people grow more comfortable in crowded spaces.The price of the item is Rise faster More than the cost of service, partly because of the roar of the supply chain and the war in Ukraine. After adjusting for inflation, commodity spending increased by 1% and service spending increased by 0.5% in a month.
Its dynamics shook the following large stores: Walmart When Target, Realized that it is not possible to pass high costs to shoppers.Discount store inventory like Dollar treeIn contrast, it surged on Thursday as it reported an increase in sales and raised its earnings forecast.
