- Inflation may not feel good, but economists say most Americans are resisting it.
- Pandemic savings remain strong, jobs are plentiful, and workers have the power to bargain for higher wages.
- A weak point is the increase in debt, but economists say it is temporary and expected.
Prices at the grocery store are higher, you’re putting more purchases on your credit card, and it costs more to fill up your car.
Inflation may not feel good, but economists told Insider there’s no need to panic, for now.
“People are noticing higher prices and that in many cases their wages aren’t keeping up,” Tara Sinclair, an economics professor at George Washington University, told Insider. She explained that it is the back and forth between rising wages accompanied by rising prices that is so confusing.
That’s probably why US consumer confidence is falling, but the overall data shows that Americans’ finances are actually keeping up. For one thing, there are plenty of jobs for everyone, Americans are still spending, and the savings accumulated during the pandemic are still helping to keep the economy afloat.
Inflation is hitting Americans where it hurts the most
On paper, it looks good that wages are going up. In response to a historic labor shortage, employers are trying to attract workers seeking higher wages, safer working conditions and more fulfilling careers, among other factors.
But skyrocketing wages don’t keep up with skyrocketing inflation, which means Americans are effectively losing money.
Median hourly earnings rose to $31.73 an hour in March, according to data from the Bureau of Labor Statistics, an increase of 5.6% from a year earlier. But inflation rose at a rate of more than 8% at the same time, according to the Consumer Price Index. That means Americans had their wages cut, according to seasonally adjusted data released by the Labor Department.
In addition, higher prices are hitting some of the products Americans need most: Car prices, both used and new, grew exorbitantly before supply-chain problems began to abate. This year, grocery prices are expected to rise 5% to 6% percent, while dining out prices are expected to rise 5% to 6.5%, the United States Department of Agriculture said. United in a recent report.
On top of that, the most recent Household Pulse Survey from the US Census Bureau reported that Americans may be running out of cash, turning to inconvenient and potentially damaging resources like increased credit card debt, loans or withdrawals and savings. Among respondents who answered the question between March 30 and April 11, 15% said they found it very difficult to cover typical expenses in the past seven days, according to the survey. Of those 15% of those surveyed, 44% said they are using credit cards or loans to meet their needs, while 34% said they are using money from savings or retirement accounts.
That’s concerning, but Dean Baker, a senior economist at the Center for Economic Policy Research, said such data should be taken with a grain of salt.
Baker told Insider that he is “skeptical” of the Pulse survey, given that its response rate is “around 5% and has proven to be very misleading in the past.”
“In particular, the survey projected a tidal wave of evictions when the moratorium ended in September. We didn’t see that,” she said. “I think overall it’s not representative.”
But people hold on to their savings.
Although Americans’ wages are declining after adjusting for inflation, savings accumulated during the pandemic still provide a needed cushion, according to the data. That’s even like pandemic aid, like the kid.
has ended, although they certainly affected struggling households.
In a recent report, researchers at investment bank and financial services firm UBS said there are three reasons to believe low- and middle-income people are coping well with inflation.
“Americans are doing better for three main reasons: wage growth has generally been higher for low-income workers employed in the service and hospitality industries, and they have more bargaining power,” Matthew told Insider. Mish, head of credit strategy at UBS. “Economists don’t see many signs of weakness there.”
Inflation may be killing wage gains across the board, but according to Mish, low-wage workers are getting effective raises as their wages grow faster than those higher up the income ladder.
The second reason is that most banks feel relatively comfortable providing credit, which means Americans will have easier access to cash if they need it.
“Although the rise in credit card debt might make it appear that people with more inflationary pressure are seeking more access to credit cards, it’s a very short-lived trend,” Mish said, referring to the Pulse survey. . “Especially after COVID, there was a noticeable decline in credit card debt.” He said that represents a change in behavior: Americans are taking on debt again after months of paying it off.
The third reason Americans are hanging on is because of the savings they built up during the pandemic, Mish said.
“The top quarter of the wealth distribution, especially the top 10%, is the one that saw the most accumulated wealth, but the bottom half still benefited from their savings and still benefits from them,” he said.