HomeBusinessInflation Continued to Run Hot and Consumer Spending Fell in December

Inflation Continued to Run Hot and Consumer Spending Fell in December

“Overall wage growth, on a nominal basis, is still pretty strong,” said Omair Sharif, the founder of Inflation Insights, referring to the wage growth that has not been adjusted for price increases. “The downside is that inflation is eating away at all of these nominal gains.”

As price gains chip away at consumers’ earnings, they also are eroding voter sentiment, making inflation a political liability for the Biden administration and Democrats during a midterm election year.

President Biden and his advisers have been trying to emphasize the positives, arguing that, despite inflation, the economy overall has experienced a historically strong rebound over the past year. Unemployment has fallen and wages have been rising, particularly for the lowest-paid workers. On Thursday, the Commerce Department said the broadest measure of the economy, gross domestic product, grew 5.7 percent in 2021, the biggest gain since 1984.

But the data released Friday complicated that narrative. Consumer spending fell 0.6 percent in December, the first decrease since February. Forecasters expect further declines in early 2022 as the Omicron wave of the coronavirus keeps workers at home and further disrupts supply chains.

And while pay is still climbing quickly for low-wage workers, those gains are no longer keeping up with inflation. Wages and salaries for leisure and hospitality workers rose 1.6 percent in the final three months of the year, less than the increase in prices over the same period as measured by either major inflation index.

Prices began to rise last year as global supply lines struggled to keep pace with demand for couches, cars and other goods. Officials had hoped those pressures would fade fast, but instead inflation has lingered and broadened into categories that are especially salient to consumers, like food and rent.

The White House has taken steps aimed at relieving pressure on choked supply chains to try to bring inflation down around the edges, but the job of slowing demand to bring prices under control rests primarily with the Fed.

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