Though recent data show inflation somewhat leveling off, there are likely higher price levels on the way — and Americans may be dipping into their savings to make ends meet.
The core Personal Consumption Expenditures Price Index (PCEPI) rose 4.9% year-over-year in April, the Bureau of Economic Analysis said on Friday. Core PCEPI increased at the same 0.3% month-over-month rate in February, March, and April. Adding fuel and energy into the mix, the PCEPI rose 6.3% year-over-year and 0.2% month-over-month in April — a cooldown from the 0.9% month-to-month rate seen in March.
“I expect the year-over-year inflation numbers to vary considerably this year, but the month-over-month numbers will show continued inflation,” Heritage Foundation research fellow EJ Antoni told The Daily Wire.
Because inflation is still outpacing gains in income, Americans are tapping into savings to cover their expenses. Households saved 4.4% of their after-tax income in April — the lowest level seen since 2008.
Antoni told The Daily Wire that “there is very little reason for consumers to think that price increases will somehow stop.”
“We have seen wholesale inflation — the prices businesses pay — outpace inflation at the consumer level for every month of Biden’s presidency,” he explained. “There are tremendous costs that have yet to be passed on to consumers, meaning much more inflation is already baked into the cake.”
As energy prices continue to rise, the added expenses will “trickle down to all goods and services across the economy, putting additional upward pressure on prices in the coming months,” Antoni added. The national average cost of regular gas reached a record-high $4.60 per gallon as of Friday morning, according to AAA.
“I started riding my motorcycle as my main mode of transportation, instead of just recreationally,” Alexis Hornickel of Greensburg, Pennsylvania, told The Daily Wire on Friday. “I’m a student, so I have a very limited budget. My gas expenses just weren’t justifiable anymore.”
In a preliminary effort to curb inflation, the Fed increased interest rates by a half-point earlier this month — which marked the largest rate hike since May 2000 and followed a quarter-point increase from the near-zero levels that have prevailed since early 2020. By raising interest rates, the central bank hopes to increase the cost of borrowing money, thereby tapping the brakes on economic activity.
But according to Antoni, the Fed’s actions “have not yet had an effect on prices.”
“We will not see downward pressure on prices from monetary tightening for some months still,” he said.
There are already indications that inflation is giving consumers pause from summer recreation. A poll from Echelon Insights, for example, found that 75% of parents are “extremely” or “very” concerned about the “rising cost of everyday purchases like food or gas.” When asked if their families have “changed or canceled plans for a family trip” because of inflation, 51% answered in the affirmative — and 41% said they “changed or canceled activities for my children like camp or extracurricular activities.”
Meanwhile, another report from the Bureau of Economic Analysis revealed that the United States economy shrank at a 1.5% annual rate during the first quarter of 2022. The United States economy had been recovering from COVID-19 and the lockdown-induced economic drag — growing at a robust 5.7% in 2021 after contracting 3.4% in 2020.