It is perhaps not surprising that Americans’ confidence in the economy has been eroded by the fiercest inflation in decades.
According to the closely watched University of Michigan Surveys of Consumers, consumer sentiment dropped to a decade-low in February. The decline was almost entirely concentrated among households earning at least $100,000.
In that group, sentiment dropped nearly 13 percent, as higher-income Americans worry about the impact of inflation and rising interest rates on their personal finances, the university report disclosed.
A year ago, the consumer sentiment index had been at 76.8 points. In February, it fell to 62.8 points.
In the United States, rising prices are impacting all Americans, and lower-income households have less budget flexibility to manage the rising cost of everyday items such as gasoline and food, CBS News report.
Inflation is more apparent to upper-income households due to the fact that they haven’t experienced the same income gains as lower-income workers in the past few years, which means their “real wages” are declining.
In addition to affecting retirement accounts and investments of higher-income workers, the stock market turmoil is fueling their anxiety. The number of lower-income Americans with access to retirement plans is about 4 in 10, compared with 8 in 10 of high-income workers.
An increase in inflation concerns could slow economic growth, since “an optimistic consumer is more comfortable spending and borrowing,” TransUnion senior vice president of research and consulting, Charlie Wise, explained.
“And one [consumer] that is pessimistic is one that is likely to pull back,” he added
Inflation is the biggest economic concern for Americans right now, according to TransUnion’s new Consumer Pulse study. The study found that higher-income consumers are more concerned than their lower-income counterparts.
The study found that 66% of households earning more than $100,000 were concerned about inflation, compared with 61% of households earning less than $50,000.
“There is less stated concern by lower-income consumers, but the question is how much of that is not understanding inflation,” Wise explained. “There is a level of financial fluency that correlates to people’s income.”
While white-collar workers’ wages are increasing at much slower rates than those of low-wage workers, low-wage workers’ wages are increasing much faster. Leisure and hospitality workers earned 13% more per hour in January than a year ago, according to government statistics. Thus, their wages were ahead of the 7.5% jump in inflation over the same period.
Over the same period, wages for workers in the financial sector, including bankers and real estate agents, increased by 4.8%. Thus, as a result of inflation, their incomes and purchasing power decreased.
Presidential Ratings for Biden
Inflation and the economy are impacting voter opinions of President Joe Biden, whose approval ratings are down, according to CBS polling. According to the poll, approximately 6 out of 10 Americans think that the economy is doing badly.
Despite this, in Biden’s perspective, the nation seems to be recovering in many areas of the economy. Many economists predict that wages will grow by at least 3% in the coming year.
“It’s really inflation that’s coming out — that’s the focus,” TransUnion’s Wise stated.
“There are very few people out there that aren’t buying groceries, aren’t buying gas. It’s unavoidable and it’s really showing up in the numbers.”
On Tuesday, President Biden acknowledged that inflation is eroding household incomes in his State of the Union address. Asserting that “my top priority is getting prices under control.”
In his speech, he discussed means to increase competition among U.S. suppliers of goods and crackdown on companies that overcharge consumers.
Inflation is still expected to remain high through the first half of 2022, so consumers are unlikely to see relief any time soon.
“A Few Potholes”
Winnie Hewett, 68, a retiree living in Mission Viejo, California, is feeling the impact of inflation. Gasoline has more than doubled on her bill since a year ago, and rental cars have jumped to $1,200 for a month from $800 when she visits her mother in North Carolina.
With her younger child now in college, Hewett has shifted a lot of her spending, which has lowered her grocery bills. However, she said blaming Mr. Biden for inflation is not the right approach, since she believes that inflation is partly a result of disruptions in supply chains and a surge in federal stimulus spending that put a boost in household finances.
“That inflation was coming — it wouldn’t have mattered who was in office,” Hewett stated.
Also, some of her retirement investments have declined in value, and she anticipates even more market volatility in the wake of Russia’s invasion of Ukraine.
“Probably we have a few holes in the road in front of us,” Hewett said, adding she still feels positive that inflation and other issues will improve throughout the year.
“When you live long enough, you see the ups and downs, internationally and here at home. I just believe that we’ll bounce back.”