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Why Americans are feeling bad about inflation despite a good economy
Americans despise inflation.
It’s an aversion that influences your perception of the economy and your personal finances. And even if the Federal Reserve achieves its hitherto unmet 2% inflation target, it won’t be enough to assuage that repulsion for most people.
In fact, if it were up to them, Americans would choose to have no inflation at all.
These are some of the findings from two recent studies that explore how Americans feel about inflation, whether those feelings can change, and what policymakers should do about that feeling.
The biggest complaint people have about inflation? This harms their standard of living, forcing Americans to adjust their budgets by purchasing smaller quantities or lower quality products.
“It is especially important to understand how people feel about this, since it is clear that people suffer from this and have many negative emotional and stress responses,” Stefanie Stantcheva, author of one of the studies and professor of political economy at Harvard University, wrote to Yahoo Finance.
Case in point: A record share of Americans say inflation remains their top financial concern, for a recent Gallup poll. It has heavy confidence despite robust job growth since the start of 2021 and an unemployment rate that has remained below 4% for 27 consecutive months.
See more information: Inflation slowed down in April – see how this affects your portfolio
‘Engrained perceptions’
The topic evokes as much antipathy now as it did nearly three decades ago.
That’s when acclaimed economist Robert Shiller decided to find out why consumers don’t like inflation so much. What he discovered still resonates with Americans today, according to Stantcheva’s study, which raises many of the same questions Shiller posed.
Three-quarters of participants in Stantcheva’s study believe that inflation erodes their purchasing power, about the same as the 77% who responded the same in Shiller’s 1996 study. And 80% of respondents in the recent study think that prices are outpacing wages, although hourly wage growth has exceeded inflation since February 2020.
See more information: How does the job market affect inflation?
Americans also reject any positive aspects associated with inflation, with 70% in Stantcheva’s study saying that “inflation indicates a bad state of the economy”, echoing Shiller’s conclusions.
“It is interesting to see that the main reasons and sentiments are very similar to those of the mid-1990s, despite all the changes that the US economy has witnessed since then,” Stantcheva wrote. “This suggests that these are ingrained perceptions, beliefs and attitudes that are perhaps not as sensitive to current events.”
The story continues
A customer takes a carton of eggs from the refrigerator of a supermarket in Washington, DC, on Saturday, April 6, 2024. (Tom Williams/CQ-Roll Call, Inc via Getty Images) (Tom Williams via Getty Images)
‘Meat of this project’
So what is the ideal inflation rate for Americans? A according to recent study caused this, revealing a huge gulf between what consumers want and the Fed’s goal.
On average, Americans prefer an annual inflation rate of 0.20%, well below the central bank’s 2% target and far from where inflation currently stands – 3.4% last month.
“That’s the essence of this project,” said Raphael Schoenle, one of the researchers on the second study and an economics professor at Brandeis University. “Very few people want more than the Fed’s perceived target.”
Demographic and socioeconomic characteristics are the strongest predictors of people’s preferred inflation rate, the study found. For example, the elderly and those whose income comes mainly from wages prefer lower inflation, while those with more assets favor higher inflation on average.
Economic reasoning also plays a role – although of lesser importance.
The researchers tested this by exposing survey participants to one of five economic theories – two providing reasons for higher inflation and three providing reasons for lower inflation.
Afterwards, participants were asked again about their preferred inflation rate and which of the five inflation theories contributed to their preference.
Several theories changed participants’ preferred inflation rate, but only one had a statistically significant effect on inflation preferences: that wages do not keep up with inflation and reduce purchasing power.
After being exposed to wage inflation theory, respondents’ preferred inflation rate was 1 percentage point lower than all other theories.
“If I wanted to draw a conclusion from this before doing more studies, [it] is that if you want people to agree to higher inflation, maybe you need to alleviate the worry that inflation will erode their wages,” Schoenle said. “Because when they are approached with this idea, they become more hesitant about to rising inflation.”
A customer fills up at a Shell station on May 15, 2024 in Miami, Florida. (Photo by Joe Raedle/Getty Images) (Joe Raedle via Getty Images)
‘Capturing people’s reality’
The distance between the rate of inflation that Americans consider acceptable and what the Federal Reserve prefers complicates their efforts – at least in the court of public opinion.
While the 2% target is the widely accepted standard for central banks around the world, researchers in both studies argue that it is important for policymakers to consider consumer preferences.
After all, Schoenle said: “Economics is an evolving science… economists don’t have a theory that says this is the target we need to aim for.”
Understanding preferences shows that people do not experience inflation in the same way, an important consideration for a central bank trying to keep the economy on a solid footing. Even the many measures of inflation vary because they look at different expenses.
“People with different incomes, as well as those who live in different locations, face very different rates of inflation due to the basket of goods they consume or the way they finance their purchases. This important variation is not well captured by our standard measures of average inflation,” wrote Stantcheva.
“This is also why it is so important not to jump to conclusions when comparing perceptions with reality – our measurements may not fully capture people’s reality and experiences.”
Janna Herron is a senior columnist at Yahoo Finance. Follow her on Twitter @JannaHerron.
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The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above â‚ą260, one can buy this Reliance Group stock at the short term target of â‚ą295, keeping a stop loss of â‚ą240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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