The global supply chain has come under much scrutiny as its inadequacies have often boosted inflation. However, little attention is paid to the concurrent skyrocketing consumer demand in the U.S. It is worth noting that the ever-increasing and massive spending of Americans is contributing just as much to inflation as the supply chain inadequacies.
American Households Saved $2 Trillion Over the Last Year
This is due to the excess savings that have been amassed by U.S. citizens as a result of restricted spending during the COVID-19 lockdown period. This is coupled with benefits from the stimulus project by the government and also a surge in equities and the value of the real estate. In addition, there has been a strengthening of the labor market with more employment and rising wages/ salaries. All these have led to households in the U.S. saving as much as 2 trillion dollars.
As a result of these factors, there has been an unprecedented surge in demand, which is a sign of an economic revival from the recession of last year. However, it is now getting out of hand, so much so that suppliers are pushing up prices. But even this has not deterred the continuous and increasing spending and demand.
Reports from the Bank of America cooperative show that there has been a 20% rise in credit card purchases from last month as at this time in 2019. Consumer confidence has risen in October after a stalemate for 4 months, especially as the effect of the COVID 19 variant is continually curtailed. Record sales are predicted for Amazon and Apple Inc. in the last months of the year. There are also predicted to be a lot of vacations, leisure trips, and travel by high-income earners, which have generally been restricted since last year. This high demand and spending habits are expected to continue until next year, as income earners are willing spenders.
Low-Income Earners Bear the Brunt of the Inflated Economy
This economic situation is more of a demand anomaly than a supply anomaly, as supply cannot catch up, according to Bridgewater Associates’ Rebecca Patterson. Jerome Powell, who is the Federal Reserve Chairman, says there is a likelihood that high inflation will continue to be a prospect until supply blockages are completely cleared.
This situation has set the U.S. aside from major world economies as consumer spending accounts for 70% of the U.S. GDP. However, there are negative consequences for low-income earners, who are already struggling as a result of the government's reduced assistance and exorbitant prices. According to credit card data by the BOA, while higher-income earners have their expenditures increased, there has been a decline in the expenditures of households that earn less than $50,000 yearly. There is therefore a decline in living standards among them.
Effect on the Dollar
In general, inflation is set to still keep rising as high spenders keep on spending, even as the end of the year approaches. With rising inflation, the value of the dollar is expected to fall in the coming year.
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