In this Bloomberg article, there was a discussion about the U.S. Economy's interest rates being high while consumers are continuing to purchase as if rates were along the historical average. The high rates of consumer spending, values that are surpassing pre-pandemic averages, are driving economic growth. This spending behavior could be explained by the rate of inflation dropping from 9% this time last year to about 3.7% today. "And yet that very same inflation has also boosted incomes, which have risen even after adjusting for inflation."
However, this does not mean that American consumers are happy with the rise in prices. Despite their income increasing due to inflation, consumers are consistently posting negative spews about how items have become too expensive. The article suggests this behavior can be described as a "frequency illusion," where as more media sources cover high inflation, then more consumers are looking for examples of inflationary prices to confirm this thought.
What do you think is creating the gap between attitude ("these prices are too high") and action (consumers spending at higher rates compared to previous years)? Will this spending continue to increase as we approach the holiday season?
The questions you propose at the end of the blog is interesting. I do think seeing the holiday trends will be interesting, I know my family is going to do less gifts and even as I am starting to shop I am being very cost aware and trying to stay within a budget for all my Christmas shopping.
ReplyDeleteI do wonder though are Americans buying even though we are mad because if we did not buy we would not get those basic necessities we need or is it that we are buying excess things like coffees from shops instead of just at our home ect. Are these things that we can brush off as luxuries and see Americans still treating them selves to with their disposable income or are they choosing to save?
Inflation is greater than increases in salaries (income) so of course consumption will be lower per person and it is acceptable that people are worried about the lack of purchasing power. It is especially evident in housing and car markets.
ReplyDeleteThe perspective that most Americans have after covid is something interesting as you have stated above. And for your questions, though not based in fact I believe it has something to do with how stable the economy has been for a long period of time. Americans have gotten used to a certain range in prices and have been for a while and now, all of a sudden there have been massive price spikes that at least two generations have never seen before causing excess outrage. Though our generation and the one before are used to being rolled over and kicked in the teeth. As for holiday shopping, I believe it will stay on trend with the amount spent as in previous years. People probably aren't going to deviate no matter how much they have to spend.
ReplyDeleteGreat post! I cannot count how many posts on social media I have read about items being more expensive and many blaming the government for such inflation. Although some receive raises to adjust for inflation, there are also others who have not received a raise in years to cover the increase in prices. I believe after the holidays consumers will start to lower consumption, as this time of year is not easy for people to cut down spending with the holidays coming up.
ReplyDeleteThe purchasing power of the dollar declined about 7% between 2021 and 2022 because of inflation during/post pandemic time. So as much as wages have also increased, people cannot necessarily afford the same as they could a few months, years ago. People consuming as much as they would before is tricky in some way.
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