RPT-COLUMN-U.S. consumers sour on inflation despite financial cushion from pandemic: Kemp
(Repeats story filed on July 15 without changes)
By John Kemp
LONDON, July 15 (Reuters) - U.S. households are in a more comfortable financial position than before the pandemic but surging inflation has started to erode those gains, stirring a sense of insecurity and anger about price increases.
Households and non-profit organisations owned liquid assets worth $18.5 trillion at the end of March 2022 up from $14.3 trillion at the end of March 2019, after adjusting for inflation, data from the Federal Reserve showed.
Liquid assets include currency as well as balances in checking accounts, time deposit accounts and money market funds, all of which are readily available to spend (“Flow of funds accounts of the United States”, June 9).
Liquid assets accumulated at a record rate in 2020 and 2021 because of pandemic-enforced restrictions on travel and social spending as well as the stimulus payments made by the federal government.
During the most intense periods of lockdown in the second quarter of 2020 and the first quarter of 2021, households were saving at annualised rates of $4-$5 trillion.
More recently, however, the inflation-adjusted value of liquid assets has been flat or falling as households have been able to travel and socialise again while rising prices have cut the real value of balances.
In real terms, liquid assets at the end of the first quarter of 2022 were down slightly from $18.7 trillion at the end of the first quarter of 2021 (https://tmsnrt.rs/3o2lLRn).
Real balances are likely to fallen much more sharply since then as most of the remaining travel restrictions have been lifted while inflation has surged.
The fact that households’ real liquid assets are high but falling fast explains why current spending remains strong but consumers and voters say inflation is their top concern and the economy is on the wrong track.
The resilience of consumer spending in the face of rapidly escalating food, fuel and other bills will depend on whether households focus on the level of their real liquid assets (high) or the rate of change (falling fast).
It also depends how long rapid inflation is expected to persist and continue eroding the value of their existing savings and ability to add to them.
SENTIMENT AT RECORD LOW
Consumers expect prices to rise at annualised rates of 5.2% over the next year and 2.8% over the next five years, both much faster than the central bank’s target (“Survey of consumers”, University of Michigan, July 15).
The proportion of households saying they are better off financially than a year before dropped to 37% in May 2022 from 42% in May 2021, while the proportion saying they are worse off leapt to 46% from 22%.