The era of consumers continuing to spend — even in the face of economic uncertainty and price hikes — may be over.
Inflation in April reached 3.8%, according to the Consumer Price Index released Tuesday by the Bureau of Labor Statistics. It was the first time in three years that inflation outpaced wage growth, according to Heather Long, chief economist at Navy Federal Credit Union.
Price increases were broad-based, led by energy, which rose 3.8% in April after rising 10.9% in March, per the government’s report. Gas prices were up over 11% in April year on year, before seasonal adjustment. The electricity index rose over 2%. Also up: five of the six top grocery food indexes, rent, airplane tickets, home furnishings and medical costs.
With prices outpacing wages, and uncertainty about the Iran war and its effect on gas prices, U.S. consumers are likely to remain under pressure for the much of the year, according to Long.
“You know, you have to pay those bills. You have to pay your electricity, you have to put fuel in your car,” she said by phone. “Sure, people can decide not to take a flight for a vacation this summer or later in the year and avoid those costs, but you can't avoid those other basics.”
The tax-refund boon is also almost over, she said. About half of the larger-than-usual tax refunds — about $350 per person on average — have been spent, mostly on higher-priced gas, and the rest will likely be gone by the end of the summer, according to Navy Federal data.
Lower-income households have been struggling for a while in this economy, and now middle-income households will also increasingly feel the pinch, Long said. This means less discretionary spending, with only smaller, lower-cost splurges, if any.
The National Retail Federation in March predicted 4.4% retail sales growth for the year, largely based on shoppers’ track record of spending even in the face of a softening labor market, persistent inflation and other challenges. But the resilience of the U.S. consumer may have finally met its match, according to Long.
“American consumers are getting squeezed, and the squeeze is real — this isn't just the vibes being bad,” she said. “It's different because it's not just the nerves, it's the dollars now. And I think it's particularly different for the middle class.”
