After two months of resurgent growth, consumer spending stagnated in September, largely due to the crushing effects of inflation, especially the spike in gas prices. According to the Bureau of Economic Analysis, nation-wide inflation rose by 0.2% between August and September. This steep increase has brought the CPIU’s annual inflation rate up to 2.8%. The jump was especially driven by sustained high gas prices, which helped fuel a broader spike in the cost of living.
With September delivering the second month in a row of price increases at the grocery store, the economic picture is becoming even murkier. Energy and food prices are very volatile. They are highly volatile, moving often with big one-time shifts, which leads to significant uncertainty around forecasting them and therefore a wildcard in the inflation equation. This boom and bust has quickly turned into a point of contention for both economists and policymakers.
The Federal Reserve’s favorite measure of inflation. This national index serves as an important signal that inflation trends are softening. Consumer behavior—which the core PCE price index is all about—is captured better by excluding the volatile food and energy prices. This method provides a better snapshot of inflation’s real effects.
Consumer spending was up 0.3% from August. When we account for inflation, this gain does not seem as remarkable—in fact, it points to a flattening of real spending. Joe Brusuelas, chief economist at RSM US, commented on the situation, stating:
“Based on this and recent private sector data, one cannot avoid the fact that the condition of the US household down market is sour at best and weak at worst.”
This concern is emblematic of the larger animal of household economic insecurity no matter where you sit on the income spectrum. Brusuelas further elaborated on the divide in economic experiences:
“Unless one lives in the upper spur of the K-shaped economy, it is easy to get the idea that at best down-market households are treading water at this time.”
The double whammy of flatlined consumer spending and increasing expenses creates a pretty grim reality for the average American household. With inflation tightly stuck on high through September, consumers are staring down more and more obstacles to making financial ends meet.