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Is inflation eroding the middle class?
Consumers are putting off buying cars and computers as prices spike, with inflation surging to 7.5% in February. But as the pandemic snarls supply chains and inflation soars, rising consumer prices are slamming ordinary Americans in the pocket. It’s getting more expensive to buy everyday essentials like milk, meat or paper goods. The cost of fuel is skyrocketing. Even Starbucks raised its coffee prices – twice since Oct 2021, after blaming supply chain strangleholds – and earned the ire of Congresswoman Pramila Jayapal on Twitter.
But behind the tweets about high gas prices and jokes about $7 coffee drinks is a real anxiety reflecting the impact of rising costs on middle class consumers.
At a Feb 18 EMS briefing, author Alissa Quart, Executive Director of the Economic Hardship Reporting Project, explained that what’s hurting people are not big-ticket items, but rising prices of smaller essentials.
“Monthly costs are starting to hurt people,” she said.
On Twitter, one angry consumer blamed the inflationary upswing on the current administration.
However, there is little evidence to support the theory that fiscal relief packages during the pandemic caused inflation in the US argues Josh Bivens, Director of Research, Economic Policy Institute. In fact, inflation rose in other first world countries that did not provide fiscal relief, he said.
What’s causing inflation?
What’s driving inflation is the global shock of Covid which has imposed “extreme distortions on the economy both on the demand and supply side,” counters Bivens. This big burst of inflation is one of the key ways that impact is showing up.
Covid wrecked the supply chain in the global economy. While snarls happened in US ports, across the world manufacturing hubs in Hong Kong, China, Vietnam, and Malaysia, experienced complete port shutdowns as waves of Covid hit. The demand side experienced a huge shift with people spending money on goods rather than face-to-face services.
“People quit gym memberships and bought a Peloton,” explained Bivens. They moved out of cities into suburbs, needing cars instead of subways.
“It was a society changing event.”
Middle America has taken a hit – the cost of living is the highest since the 1980’s and supply chain issues seem unlikely to ease in the coming year. The end is not in sight, just yet, say experts.
However there are lessons to be learned from the current spike in inflation, said Penny Wang, a Deputy Editor at Consumer Reports (CR), who writes about money and financial fairness.
“I think it’s important to use it as a touchstone in people’s individual financial planning (as a reminder) that you have to plan around it in terms of saving, budgeting, as well as how you shop.”
Wang offered a number of tips to offset the sticker shock of paying high prices for everyday essentials. At CR, she stated, “our recommendation is to really be very strategic about your shopping and spending,” by seeking deals, bargains, and lower prices on products.
Tips for Dealing with High Prices on Consumer Goods
Last fall, a CR survey reported that 90% of Americans saw significant price hikes for many goods, but the rising cost of gas was “kind of hard to ignore,” said Wang.
While there is no silver bullet for solving that situation, CR found that different pumps had different prices, and using an app like Gas Buddy, for example, could help consumers source cheaper fuel for their cars. Wang also suggested buying energy efficient cars if planning a vehicle upgrade, carpooling, or using other strategies to reduce car use. CR provides tips on using less gas when driving, she added.
Grocery shopping was another pain point, said Wang, but consumers could save significantly by using private label products like Sam’s Club, Costco, or CVS, for essentials such as meat, fresh fruits, milk, packaged food and cleaning products. Loyalty programs could be useful to keep informed of deals, points, and discounts towards purchases. Wang urged using rewards cards which offer 5% or 6 % back on groceries as “not something to ignore if your budget is tight.”
Consumers should stock up on durable goods but wait to buy appliances, advised Wang. For example, it would be better to buy computers when chip production is boosted, so as to get better prices.
Ordinary Americans are feeling the pinch as the cost of living escalates, but, noted Wang, “it’s a wakeup call for people in the middle class who have not been aware of inflation before.” Companies are reluctant to cut costs and show a tendency to raise prices, especially those producing packaged food and cleaning products – their profit margins are even higher.
“You can’t count on savings from them, so you have to be the one to put on the price controls,” she cautioned.
CR is advocating tried and true strategies to help consumers change their spending habits. They suggest buying used products and sharing purchases with neighbors or family to help tight budgets.
CR publishes a monthly column on the best time to find bargains and buy things, as well as a calendar of where different categories of products tend to go on sale – for example, mattresses and smart phones were on sale in February. Wang suggested trying Sierra.com for deals and recommendations on economical and reliable products.
For families struggling financially, CR has published information on programs that can assist with cost cutting, such as the Affordable Connectivity Program that can help low income families with Internet costs.
When will inflation delink from Covid?
Bivens hopes that by the mid 2022, inflation will start to decelerate on its own, as supply chains open up and economic activity begins to ‘delink’ from Covid.
Less pressure on supply chains will result from a slowdown in the demand for durable goods – that boom may start to slow simply because people are unlikely to spend on big ticket items.
“Nobody buys a house and a car every single year.”
Meera Kymal is the Contributing Editor at India Currents and a 2021 and 2022 grantee from the USC Center for Health Journalism, reporting on domestic violence in the South Asian community.