Inflation remains stubbornly high one year after the Inflation Reduction Act was passed, leading industry experts to predict a challenging economic season ahead.
Former Toys "R" Us CEO Gerald Storch warns that the upcoming holiday season will be "very difficult" for retailers due to consumer reluctance to purchase goods. Storch points out that while consumers are still spending money on services, sales of physical products have declined for 11 consecutive months when adjusted for inflation.
The July consumer price index (CPI) rose 0.2% from the previous month, in line with estimates. Prices have climbed 3.2% from the same time last year, slightly below the forecasted 3.3%. Pulte Capital CEO Bill Pulte emphasizes that high inflation is far from being solved, describing the current economic situation as stagflation, characterized by low growth and high inflation. Pulte highlights the struggles of the American people, particularly in meeting shelter and medicine costs, and notes that inflation remains a pressing issue.
Apart from persistent inflation, consumers also face rising interest rates when purchasing capital goods such as cars and homes. Additionally, credit card debt is increasing, with consumers resorting to high-interest credit cards. Storch points out that as interest rates rise, so does credit card debt, making it more expensive for consumers to buy what they need. Furthermore, the burden of student loans adds to the economic stress faced by consumers.
While some relief is seen in certain areas, such as a decrease in the price of used cars and trucks and airline tickets, other price gains remain stubbornly high. Shelter costs, which account for a significant portion of the core inflation increase, rose 0.4% in July and have increased by 7.7% over the past year. Moody's Analytics reports that Americans are spending $709 more per month on everyday goods and services compared to two years ago.
In response to inflation, consumers have shifted their shopping priorities, opting for value retailers with limited discretionary cash. Storch highlights the shift towards value retailers, citing Target's decline in sales and TJ Maxx's increase. Storch argues that in tough times, consumers turn to Walmart, while in better economic conditions, they spend more at Target. He suggests that the Target-Walmart sales spread reflects consumer sentiment.
Despite the challenges faced by many Americans, President Biden continues to champion his economic policy, known as "Bidenomics." On the one-year anniversary of the Inflation Reduction Act, Biden acknowledged that the act was not solely aimed at reducing inflation but rather focused on providing alternatives for economic growth. However, skeptics like Pulte caution that the consequences of Biden's economic policy will eventually manifest and have long-term effects.
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