COTW: The Consumer Squeeze

April 18, 2023COTW: The Consumer Squeeze

  • The latest CPI print seems to show good news: Inflation increased by 5.0% year-over-year, and is finally showing signs of easing after peaking at 9.1% in June 2022. However, this is still well above the Federal Reserve’s 2.0% target, which means that there’s still a way to go before prices stabilize. Wages have been unable to keep up with the still-elevated levels of inflation. The latest report revealed that real wage growth has been negative for 24 consecutive months, since March 2021, and is officially the longest period of negative wage growth on record.
  • Higher inflation is not only affecting wage growth. As the Fed has been hiking rates in efforts to bring inflation back under control, the interest rate on credit cards has skyrocketed. On April 12, the average credit card interest rate in the U.S. hit a record-high level of 20.2%. This marks a 40% increase from a year ago.
  • Thus far, consumers have been able to handle negative real wage growth and record-high credit card rates by dipping into excess savings accumulated during the COVID-19 pandemic. However, as these savings start to deplete, the question arises as to how much longer the consumer will be able to rely on excess savings to sustain the U.S. economy.


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