‘Prices will not come back down’: Americans dip into their savings to cope with record-high inflation

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Americans accumulated additional savings during the pandemic, but that money is rapidly declining due to inflation.

About 70% of Americans are using their savings to cover rising prices, a recent Forbes Advisor survey of 2,000 American adults concluded. Among respondents, older adults were more likely to say they have left their savings intact.

In fact, the personal savings rate for April 2022 reached 4.4%, the lowest level since September 2008, below 6% at the beginning of the year, according to the Office of ‘Economic Analysis, a department of the U.S. Department of Commerce.

Another concern: More respondents told a New York Federal Reserve “Consumer Expectation Survey” that their finances are worse now than they were a year ago. In fact, the average perceived probability of not paying a minimum debt payment in the next three months rose 0.4 percentage points to 11.1%, according to the results of a survey released on Monday.

“Growth expectations for average nominal household spending rose sharply to 9% from 8% in April,” the New York Fed said. “This is the fifth consecutive increase and a new maximum of series. The increase was most pronounced among respondents between the ages of 40 and 60 and those without a university degree. “

This drop in savings and rising spending comes at a time when the drum of the recession is getting stronger. Case in point: Almost 70% of the 49 respondents expect the National Economic Research Office to declare a recession next year, according to the FT survey published on Sunday; the survey was conducted with the Global Markets Initiative at the Booth School of Business at the University of Chicago.

While some Americans have accumulated savings during the pandemic, aided by government benefits related to VOCID, it appears that these savings are falling short as people cope with rising prices.

Laura Veldkamp, ​​a professor of finance and economics at Columbia University, suggested that people try to renegotiate salaries with their employers. “Prices will not go down again,” he said. “They never do.” Immersing yourself in savings to cope with rising prices is not a long-term sustainable solution, he added.

The rising cost of living is making Americans nervous. Inflation rose 8.6% during the year to May, the highest since 1981. A U.S. consumer confidence survey fell in May to a three-month low of 106.4. This is one of many polls that point to a pessimistic view of people both in terms of their own finances and the US economy.

For the week ending May 29, grocery inflation hit an all-time high of 14.6% compared to a year ago, according to the latest survey by data company Numerator. The survey shows that middle-income consumers (those earning between $ 40,000 and $ 80,000 a year) are paying the largest price increases across all income levels.

“Reducing your budget doesn’t have to be painful.”

– Thomas Scanlon, financial advisor to Raymond James Financial

In April, consumer spending rose by $ 152.3 billion, according to separate data from the Office of Economic Analysis, with people spending more money on motor vehicles and auto parts, in addition to food and housing. Compared to the previous month, gas and other energy consumption decreased by $ 26.9 billion.

On Sunday, AAA set the national average at $ 5.01 per gallon of gasoline. That’s 20 cents more than a week ago, 60 cents more than a month ago, and nearly $ 2 more than the average of $ 3.07 a year ago, according to AAA data.

Thomas Scanlon, financial advisor to Raymond James Financial in Manchester, Connecticut, said it was a good time to adopt financial habits, such as borrowing from the public library instead of buying a book and looking for free leisure activities, such as visits to some. museums and beaches.

“Reducing your budget doesn’t have to be painful,” Scanlon said. “It can be an opportunity to have a good time with friends and family.”

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