Strong consumer spending likely helping to fuel higher prices
Another report on consumer inflation is coming this week, and so is one gauge of consumer spending. Together, they may indicate how American shoppers are absorbing higher prices.
No one had inflation on their holiday shopping list, but that’s what plenty of people found. From gasoline to toys, appliances to hotel rooms, inflation was an uninvited holiday guest. December’s U.S. consumer price index will be released Wednesday, followed by the December retail sales on Friday.
Inflationary trends have dominated investor concerns as of late, particularly as higher-than-desired inflation has pushed the Federal Reserve to end its bond-buying economic support program months earlier than planned. Consumer inflation in November jumped at its highest annual rate in more than 40 years. The December figure isn’t expected to show much cooling off.
What had been thought to be transitory inflation has turned into tolerable, at least for now. Higher prices haven’t turned away consumers.
The surge of omicron coronavirus variant in December may have curtailed some spending at restaurants and for travel, but likely shifted that spending to other pursuits and presents. The National Retail Federation expects holiday sales jumped by as much as 11.5% from a year ago.
That kind of spending helps fuel higher prices. After all, one version of inflation is too much demand chasing too little supply.
Many Americans have cash and credit and are using both. The personal savings rate was over 10% for most of last year. Personal credit scores hit a record high. And spenders are back to using their credit cards. After falling for about a year and a half, credit card debt is climbing again.
It is important to note that inflation doesn’t affect every American household the same. For richer Americans, high prices tend to creep in, more bothersome than budget-busting. For poorer Americans, inflation devastates their often tenuous financial state.
More important than actual inflation and spending may be the expectations about prices and spending as those expectations drive financial decisions. The University of Michigan consumer sentiment index finds inflation expectations over the next year are higher than they’ve been since the Great Recession that occurred between 2007 and 2009.
It is tough for economic growth to sputter or slide with consumers spending their pandemic-induced savings and government stimulus money. Instead, the worry has shifted to an economy that is too hot. This week’s consumer inflation and retail sales data likely will add to that narrative.
Tom Hudson hosts ‘The Sunshine Economy’ on WLRN-FM, where he is the vice president of news. Twitter: @HudsonsView