Jan 23, 2024, 6:06 PM
A visitor checks costs while shopping for food at a grocery store in Wheeling, Illinois, on Friday, Jan. 19, 2024. A typical basket of groceries now costs 20% more than it did in February 2021, just before inflation takes off . (AP Photo/Nam Y. Huh) Credit: ASSOCIATED PRESS
(AP Photo/Nam Y. Huh)
BY ASSOCIATED PRESS
WASHINGTON (AP) — After a long era of pessimism, Americans are starting to feel better about inflation and the economy, a trend that may simply help customer spending, boost economic expansion and potentially President Joe Biden’s political fortunes.
A measure of customer confidence across the University of Michigan has seen its biggest increase since 1991 in the past two months. A survey conducted by the Federal Reserve Bank of New York found that Americans’ inflation expectations are at their lowest point in about 3 years. And the same survey, released last week, found that the share of those who expect to improve their own finances within a year is at its highest point since June 2021.
Economists say consumers appear to be reacting to a steady slowdown in inflation, higher incomes, lower fuel prices and an emerging stock market. Inflation fell from a peak of around 9% in June 2022 to 3. 4%. According to the Federal Reserve’s value indicator, inflation has reached the Federal Reserve’s annual target of 2% when measured over the past six months.
What’s more, paychecks have outpaced inflation over the past year, thereby easing Americans’ adjustment to a higher cost of living. Weekly earnings for the typical worker — halfway between the highest and lowest earners — rose 2.2% last year after adjusting for inflation, the government reported last week. By that measure, inflation-adjusted pay is 2.5% higher than before the pandemic.
“While falling inflation has been slow to fuel customer confidence, the good news appears to be felt nonetheless,” said Grace Zwemmer, an analyst at Oxford Economics.
Even with inflation slowing, costs are still about 17% higher than they were three years ago, a source of discontent for many Americans. Even if some individual goods become cheaper, overall costs will most likely remain well above their pre-pandemic levels.
That dichotomy — a rapid fall in inflation with a still-elevated cost of living — will likely set up a key question in the minds of voters, many of whom are still feeling the lingering financial and psychological effects of the worst bout of inflation in four decades. Which will carry more weight in the presidential election: The dramatic decline in inflation or the fact that most prices are much higher than they were three years ago?
Think about the value of food, one of the things other people encounter most often. Food inflation has fallen from a year-on-year high of 13. 5% in August 2022 to just 1. 3%. However, a typical grocery basket still costs 20%. more than in February 2021, just before inflation accelerated. On average, the value of birds has increased by up to 25%. The same goes for bread. Milk is 18% more expensive than before the pandemic.
The cost of renting an apartment has also skyrocketed and continues to rise faster than before the pandemic. Rental prices rose 6. 5% from a year earlier, nearly double the pre-pandemic pace. At their peak in early 2023, rents were emerging through nearly 9% consistent with the year.
Significantly higher prices for critical goods like food and rent still pose a heavy burden to others like Romane Marshall, a 30-year-old software engineer who lives in suburban Atlanta.
In late 2020, Marshall took on the computer coding categories in an attempt to move beyond the warehouse and visitor service jobs he previously held. When he was hired through a professional consulting firm in April 2021, he was “excited. “The following year, his salary increased from $50,000 to $60,000.
However, their expenses also continued to increase. When she moved to a new apartment to be closer to her work as her company transitioned from full-time remote work to a hybrid schedule, her contract doubled to $1,475 a month, up from the $700 she had paid for a room in the a friend’s house
Marshall says his typical grocery bill now hovers around $120 to $130, compared to just $70 to $80 3 years ago. For your electric energy costs, you only turn on the heat in your apartment occasionally.
“There have been positive changes, it’s just that things have become more expensive,” he said. “The only thing I realize is that the value of food is still high. “
Some Americans are now more optimistic. Hiring has remained strong, and the unemployment rate remained below 4% for just two years, the longest era since the 1960s.
Dana Smith, a software developer, says she’s optimistic that the economy is improving. He and his wife have both received pay raises that have helped offset the price spikes of the past three years.
Smith, 40, lives in Matthews, North Carolina, about 30 minutes from Charlotte, where he and his wife bought a home about three years ago. Since then, their price has risen by about 30%, expanding the wealth of their homes.
“My perception,” he said, “is that the economy is getting better and better.”
The public’s growing optimism about the economy may simply be a sign of renewed enthusiasm for Biden’s candidacy this year, after weak polls accounted for much of his tenure. Still, Ryan Cummings, an economist who has analyzed customer confidence and how it is affected by political opinions, cautioned that politics may simply restrict the improvement of public opinion.
Americans’ economic prospects, he said, are increasingly decided through political partisanship rather than the underlying functionality of the economy.
“As the election progresses,” Cummings said, “and it becomes clearer that the 2024 race will be Trump rather than Biden, Republicans would likely accentuate their pessimism more than Democratic sentiment increases, causing it to recede, regardless of economic fundamentals. »
The University of Michigan survey found that Democratic customer confidence rose 11. 8% in January, the second-largest increase on record (the largest increase among Democrats came after Biden’s 2020 presidential victory).
Many Americans may still prefer the government to take action not only to curb inflation, but also to try to get overall values back to where they were before the pandemic. In an old research paper from 1997, Nobel Prize-winning economist Robert Shiller found that two-thirds of respondents to a survey he conducted agreed that the government opposes a 20 percent price increase.
Economists warn, however, that any attempt to do so would require a significant weakening of the economy, as a result of a sharp increase in interest rates through the Federal Reserve or a tax increase. The most likely outcome may simply be a recession that would claim millions of jobs.
David Andolfatto, an economist at the University of Miami and former Federal Reserve economist, said it is most productive for wages to rise over time to allow other people to adjust to higher prices.
“The cost of living is higher, salaries are higher,” he said. “Let’s move on. There is no need for (the government) to reduce the value level. It would be too painful. “
Claudia Sahm, founder of Sahm Consulting and also a former Fed economist, said “people are angry” about emerging prices.
“But then, the next question is, can you afford it?” she asked. “Not everybody can say yes to that question. But over time, more and more people will be able to say yes.”
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AP Writer Josh Boak contributed to this report from Washington.