Another report on consumer inflation is due in the week ahead. 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 Consumer Price Index will be released Wednesday followed by the December Retail Sales on Friday.
Inflationary trends have dominated investor concerns lately, particularly as higher-than-desired inflation has pushed the Federal Reserve to end its bond-buying economic support program months earlier than first planned. November consumer inflation jumped at its highest annual rate in more than 40 years. The December figure isn’t expected to show much of a cool-off.
What had been thought to be transitory inflation has proved to be tolerable, at least for now. Higher prices haven’t turned away consumers.
The omicron COVID-19 surge that began in late December may have curtailed some spending at restaurants and for travel, but it likely shifted that spending to other pursuits and presents. The National Retail Federation expects holiday sales could jump by as much as 11.5 percent from a year ago.
That kind of spending helps fuel higher prices. After all, one definition 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 percent for most of last year. Personal credit scores hit a new 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 in the same way. For richer Americans, high prices tend to creep in — more bothersome than budget-busting. For poorer Americans, inflation devastates their oftentimes tenuous financial state.
More important than actual inflation and spending may be the expectations about prices and spending, as those expectations drive financial decisions today. The University of Michigan Consumer Sentiment index finds inflation expectations over the next year are higher than they’ve been since the Great Recession.
It is tough for economic growth to sputter or slide with the U.S. consumer spending its pandemic-induced savings and COVID 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.
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