(Financial World) Inflation "Erodes" Savings of Residents

  China News Agency, Beijing, December 24th: Inflation "erodes" residents' savings The US economy encounters "headwinds" again

  Author Liu Wenwen

  2022 has come to an end.

Since March, the Federal Reserve has raised interest rates seven times in a row, but it has still failed to control the "runaway" inflation, which has caused a series of economic problems.

  A report released by the US Bureau of Economic Analysis recently showed that the US personal savings rate in October was 2.3%, which was close to the historical low of 2.1% in July 2005.

Nearly 80% of Americans complain that high prices caused by high inflation make it difficult to save money.

  High inflation makes saving difficult

  The above-mentioned report shows that during the new crown pneumonia pandemic, due to the closure of restaurants and entertainment venues, the American people have fewer opportunities to spend, and the personal savings rate has risen sharply.

  Based on this background, Arabinda Basista, a professor of economics at West Virginia University, believes that the decline in the personal savings rate in October this year means that the American people have gradually resumed consumption.

However, as consumption picks up, high prices caused by high inflation also make it harder for Americans to save money.

  Now that the Christmas and New Year holidays are approaching, the US shopping season has encountered a "cold snap".

According to a poll, 57% of the respondents said that it is difficult to afford the gifts they want, so they can only decide to give less gifts.

69% believe that the prices of their favorite holiday gifts have been increasing in recent months.

  Obviously, inflation is "eroding" the income of the American people.

A Bank of America survey found that 63% of Americans are setting savings goals for 2023, but 77% believe that inflation may become a major problem for saving.

  U.S. consumption faces greater headwinds

  Ming Ming, chief economist of CITIC Securities, predicts that the pressure on consumption in the United States will be greater next year.

  First of all, from the perspective of residents' income, the growth rate of US consumption is closely related to the growth of the labor market. It is expected that the weakening of the labor market next year against the background of economic downturn will constitute the biggest "headwind" of consumption.

The impact of the Federal Reserve’s aggressive interest rate hikes on the economy is expected to be further revealed next year, and the deterioration of the labor market may appear in the first half of next year. Against this background, consumption may stall relatively quickly.

  Secondly, in terms of savings level, the excess savings of American residents in this round is expected to be exhausted in the first quarter of next year, and its support for consumption will become relatively weak.

  "In fact, the current US consumption has experienced sluggish growth, whether it is consumption of goods or services. Although nominal retail sales are still growing, real retail sales have weakened since inflation began to soar in April 2021." Mingming pointed out that although At present, the inflection point of inflation in the United States has come, but inflation is still at a high level, and the pressure of high housing rents and high loan repayment still exists. The inhibitory effect of inflation on consumption will be further manifested in the future.

  Recession signs are becoming clearer

  When the headwinds hit, the signs of a recession in the U.S. economy became clearer.

  U.S. retail sales fell 0.6% month-on-month in November, the biggest drop since December 2021, the data showed.

According to expert analysis, high inflation has suppressed residents' consumption ability and willingness, which has caused a sharp decline in the purchasing power of American consumers. It is expected that the momentum of American consumption will continue to weaken.

  In addition to weak consumption, U.S. household debt levels have also risen significantly.

According to the data released by the Federal Reserve, due to the impact of the inflation rate continuing to approach the highest level in more than 40 years and the rising interest rates, the increase in US household debt reached US$310 billion in the second quarter of this year; it even jumped US$351 billion in the third quarter, the largest since 2007 increase.

  Lu Zhe, chief macro-economist of Tebon Securities, analyzed that consumer spending and personal tax burden constitute the main force that consumes savings.

From the perspective of consumption expenditure, in order to support their own consumption demand, American residents began to use the excess savings retained in the previous period. The accelerated consumption of savings also made the savings level of the household sector continue to fall below the trend line.

From the perspective of personal tax burden, a rising tide raises all boats, high inflation, and growth in wages and income levels bring about an increase in the tax base, which in turn accelerates the consumption of excess savings.

  "It is expected that the excess savings of the U.S. resident sector will be exhausted in November 2023. At that time, the largest growth engine of the U.S. economy-private consumption may face the risk of 'flaring', triggering an economic recession." Lu Zhe said.

  If a recession does come, Americans who haven't saved enough will find themselves in a tough spot, as the media has warned.

(use up)