World Bank warns global economy could experience 1970s-style stagflation
Families are feeling the pinch. Nearly 9 in 10 Americans say they have started bargain-hunting for cheaper goods, and about three-quarters are cutting back on dining and entertainment, or delaying planned purchases, according to the Post-Schar poll conducted in late April and early May. . .
The findings come as inflation takes center stage as one of the main economic and political obstacles for the Biden administration. After months of dismissing the price hikes as a short-term shock, the Federal Reserve recently began raising interest rates in hopes of cooling the economy down enough to moderate inflation. Still, two-thirds of Americans (66 percent) expect inflation to get worse next year, while 21 percent expect it to improve and 12 percent think it will stay the same, according to the poll.
“We’re cutting everything — and I mean everything,” said Bethany Davis, who lives with her boyfriend in Barbourville, Kentucky. “Gas, meat, bread, it’s all expensive as hell. At one point you think you can buy something, then you go to the store and think, ‘No, I can’t buy that anymore either.’ ”
Davis, 20, has stopped eating meat, is cutting back on showers and washing clothes, and has been rationing trips to the grocery store to save gas. She and her boyfriend are down to one, maybe two meals a day, which usually consist of white bread, Velveeta cheese and $1 bags of rice, she said.
After more than a year of steadily rising prices, many Americans are starting to rethink their spending habits to account for inflation. About 6 in 10 people say they are driving less, minimizing electricity use and saving less, while about half say they are trying to buy goods before prices soar, according to the survey. And just under 3 in 10 say they got a second job or worked longer hours as a result of inflation.
The survey results could also be an early warning sign of the trajectory of inflation in the coming months. As more Americans change their behavior by assuming that inflation will get worse, these actions can increase inflation, leading to a cycle that is difficult to break. In fact, about 52% of Americans in the survey said they bought products before prices soared.
“People’s expectations of inflation are rising,” said John Taylor, an economist at Stanford University and a former Treasury Department official under the George W. Bush administration. “The concern I have is that if people are saying ‘inflation is going up, let’s buy it now’, that increases inflation even more.”
Inflation-driven lifestyle changes are more common among Americans who say rising prices are a “major financial stress” for their family. Nearly 8 in 10 people in this group say they are saving less, and more than 4 in 10 say they have taken on additional work.
The survey shows that 57% of Americans say they have enough money to maintain their standard of living, while 20% say they are falling behind financially and 23% say they are getting ahead. Still, two-thirds say they are optimistic about their family’s financial situation.
“We’ve all noticed that prices have gone up in the last year,” said Antonio Doblas-Madrid, an economics professor at Michigan State University. “People are looking at this and expecting it to continue, which could be a worrying sign.”
More than a third of Americans say recent price increases have been a major financial stress on their families, with concerns hitting low-income households: a 54% majority of people with household incomes below $50,000 say they rising prices are a “major financial stress,” compared with 31% of those with incomes between $50,000 and $100,000 and 17% of those with incomes of $100,000 or more.
Adults under 50 and women were also more likely to report greater financial stress as a result of inflation than older adults and men.
“Inflation is a regressive tax: it is very expensive for the poor,” said Doblas-Madrid, adding that one of the most determining factors is often whether someone owns or rents their homes. “If you’re renting, rents go up when inflation goes up, but if you’re a homeowner, your real estate starts to appreciate.”
Housing – which takes up the majority of household budgets – has been a particular source of tension for many families. Home prices rose 21 percent last year, according to the S&P CoreLogic Case-Shiller index, while asking rents rose 15 percent nationwide, Redfin data show.
About 1 in 4 Americans in the Post-Schar School survey said it would be easy to rent a house in their current neighborhood if they had to move. But a majority of 74% say it would be “somewhat difficult” or “very difficult” to move to their neighborhood.
Meanwhile, nearly half of renters report great financial stress due to inflation, compared to 30% of homeowners.
Tosha Jankosky pays $1,356 a month for a two-bedroom apartment she shares with her teenage children in Noblesville, Indiana. The 41-year-old office manager earns $23 an hour – the best salary of her career – but says she still feels like she’s losing ground financially.
She recently ditched her cable TV subscription, is cutting back on purchases and has put off buying furniture such as bed and sofa bedsteads. Still, she says, it’s becoming increasingly difficult to make ends meet.
“I should be able to live alone,” she said. But “I’m getting ready to pay the rent and it’s going to take every penny I’ve earned.”
Gas prices – which are at record highs close to $5 a gallon – are another source of stress. The majority of drivers – 64% of them – are making fewer trips to shop to save gas, the survey found, while 34% report driving slower and just over 2 in 10 have carpooled or worked from home because of gas prices. .
Meanwhile, more than 4 in 10 drivers say they have only partially filled their car, a figure that rises to 61% of drivers with incomes below $50,000, according to the survey.
Americans blame several factors for the rise in gas prices: 72% blame companies trying to boost profits and 69% blame Russia’s actions against Ukraine, while 58% blame President Biden and the pandemic disruptions.
Back in Kentucky, Davis says gasoline has become such a burden that she and her boyfriend recently filled a few extra plastic gallons with fuel when gas prices temporarily dropped below $4.50 a gallon. She and her boyfriend work at Dollar General and take home $300 a week, $80 of which goes to gas the old truck.
High gas prices, she said, are not only cutting into her budget, but also limiting her small-town employment options. The highest-paying jobs are in factories on the outskirts of town, about 80 kilometers away.
Davis’ boyfriend recently quit his $10-an-hour job at a cookie factory after the 80-minute commute became untenable. His job at Dollar General is closer to home, but it only pays $9.25 an hour.
“When you live in the middle of nowhere and gas prices keep going up, it affects everything,” Davis said. “The fight is getting harder and harder.”
In addition to altered driving habits, economists say rising prices — and changing consumer behavior — are likely to have bigger effects on major life decisions like where to live and get married or have children.
Almost every day, Jayden Collins and his wife talk about starting a family, so they check their savings account to see if they can afford it.
Inflation is a persistent obstacle, said Collins, a student nurse in Logan, Utah. Monthly rent and utilities are up about 50% from last year to $1,100. He earns $17 an hour working in a warehouse during the school year, but he and his wife are looking for weekend jobs to make ends meet.
“Right after we got married, I was like, ‘Let’s go out. It’s like a date night every night,’” the 22-year-old said. “Now we’re like, ‘Man, this turned out to be way more expensive than I thought it would be.’ ”
This leads to near-night discussions about his financial future, he said. Family and friends around him are pregnant or have young children, which makes him wonder how much longer he and his wife will have to wait before having children of their own.
“We really want to get there,” he said. “My wife says, ‘So how can we improve our spending?’ That’s one of the main things we talk about. At least once a week, we say, ‘What do we spend money on that we couldn’t have spent?’ ”
The Post-Schar survey was conducted from April 21 to May 12 among a random national sample of 1,055 adults, who completed an online or paper-based questionnaire. The margin of error is plus or minus four percentage points overall and among the sample of 978 car drivers.