The Rabid Capitalist

Professor Glenn A. Okun

Americans have had to cut back on discretionary spending due to inflation.  According to a report based on a survey produced by Statista in April 2023, 64 percent of U.S. adults said they reduced their spending on these goods, while an equally high share of respondents said they paid greater attention to discounts.

The battle with inflation over the last two years has taken its toll on the consumer.  Inflation has concerned consumers who have observed a noticeable increase in their cost of living.  For many, inflation has not only increased their cost of living but also has decreased their standard of living, resulting from inflation rates exceeding wage gains.  Essential expenditures, including food and fuel, have been plagued by persistently high inflation. 

While the Fed prefers to focus on core CPI that excludes these costs, the consumer does not.  These every day expenditures shape consumer sentiment and behavior. Declining consumer confidence reflects the stress of higher petroleum prices, stricter credit conditions, and persistent inflation.  Elevated food and fuel expenses are crowding discretionary items out of the consumers’ market basket. 

The health of the consumer and its contribution to GDP will continue to be threatened by these sources of inflation.  The Fed cannot declare mission accomplished until all-item CPI is brought under control.  In the interim, the consumer discretionary goods and services sectors will be fraught with investment risk.