By CHRISTOPHER RUGABER and ANNE D’INNOCENZIO, edited by News Gate Team
Washington, D.C. The Goldilocks consumer, if you will.
Consumers continue to spend despite high inflation and abrupt interest rate increases; if this pattern continues, it might keep the economy humming just enough to help prevent a much-anticipated recession.
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The ordinary consumer, according to polls, does not believe that the current, high inflation will persist for very long. They may decide to curb their spending and salary demands as a result of their increased confidence, which would eventually help to reduce inflation.
If the pattern continues, it might be simpler for the Federal Reserve to control inflation without putting the economy at risk. A recession would be less likely as the Fed could scale back rate increases as inflation declined.
According to Neil Saunders, managing director of GlobalData Retail, “the economy is in a middling period.” “The temperature is just right for retail, not too hot or too cold. Since nothing is booming right now, nothing has crumbled either.
After the pandemic generated a swift but severe recession followed by a strong comeback, the economy appears to have entered a phase where growth may not be as strong as to support high inflation, nearly three years later. One explanation is that people are still making purchases, but not as quickly.
Take into account Francisco Santana’s buying patterns; he stocked up on groceries last week at a Walmart in North Bergen, New Jersey. Santana, a 39-year-old resident of New York City, spent several hundred dollars on bacon, sugar, hamburger buns, and cream cheese, among other items he claimed would be sufficient to feed his family of five for a few weeks.
Yet Santana claims he’s being cautious with his expenditures. He had switched his grocery shopping from local chains to Walmart as a result of the spike in inflation. According to him, at some other supermarkets he’d shopped, a package of strawberries might have cost twice as much as the $5 he paid there.
He stated, “I’m looking for quality and affordability.” “Inflation is still a major problem.”
Consumer surveys, which the Fed constantly monitors, reveal that Americans’ expectations for future inflation are still low two years into the biggest inflationary wave in four decades and are, in some cases, almost back to pre-pandemic levels.
Reduced inflation expectations are important because higher inflation expectations tend to lead to increased compensation demands and payments from employers. In order to cover their rising labour costs, businesses frequently charge their clients more, which increases inflation. In this approach, increased inflation expectations can transform high prices from a short-term disturbance, like a shortage of oil, into a more significant issue.
Lower inflation expectations, however, can change that dynamic and support a reduction in inflation.
