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Inflation pushes household spending
Financial markets had a significant selloff after the government reported January inflation was higher than expected. FOX 26 Business Reporter Tom Zizka says for customers, the news is something many already know.
HOUSTON - Financial markets had a significant selloff after the government CPI report found January inflation was higher than expected. The Dow Jones Industrials, the S&P 500, and Nasdaq all fell on the day, as investors lose hope for a quick interest rate cut.
For consumers, the news is something many already know, as they try to stretch their household budgets.
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Dallas money-manager Bill Dendy says the consumer-takeaway from the CPI report, that prices rose 3.1%, year-over-year, is that we are still paying more.
"Inflation has come down dramatically, but just because inflation comes down, doesn't mean the prices come down with it," he says, "It means they don't go up as quickly as they were."
"People aren't stupid," says Houston financial advisor Rich Rosso. "They go to the grocery store every day; they're getting their insurance bills in the mail, and wondering how they're going to do it."
The Consumer Price Index tracks the prices of 80,000 items. While some have fallen, the January report finds things like restaurants, services, insurance, and housing remain stubbornly expensive. It all adds up. A Moody's Analytics report finds average households have seen monthly expenses climb $211 in the last year, $605 versus two years ago, and $1,020 compared to three years ago.
For Wall Street investors, the news puts a chill on their hopes of a near-term interest rate cut. For consumers, even a slow rise in prices, while wage increases struggle to keep-up, means the struggle to stretch their dollars will continue.
"Yes, it will moderate," says Rosso. "But it's not going to go back to where it was, so that means everybody has to make an adjustment in their budget."
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Just weeks ago, a University of Michigan report found consumer sentiment saw it's biggest two-month jump since 1991, and spending remains high. The problem, for some, is that spending is draining savings and adding debt to credit cards.