Inflation and Inequality

The job market has been hot. The economy has added jobs for 39 consecutive months, marking the fifth-longest period of job expansion on record. The unemployment rate has been below 4.0% for 26 months in a row, the longest streak since the late 1960s. Moving to the stock market, the S&P 500 has gained approximately 80% in the last five years. These strong economic numbers should be making the average American very happy. However, consumer confidence has not returned to the heights seen before the pandemic — though confidence is well above the pandemic era lows. Why is this the case?

The first reason we can think of is inflation. If you get a raise and rising food prices eat up your gains, you feel like you are on a treadmill. Every trip to the grocery store or the gas station is a reminder of such. Keep in mind that the “post-pandemic” inflationary surge seems to be over, but that does not mean prices are going back down. It just means they are not rising quickly anymore. Wage gains are again outpacing inflation and that means more purchasing power in the long run.

The second reason is inequality. If you own a home and/or have a healthy portfolio of stocks, you have done well over the past five years. The majority of American adults are homeowners and if you bought your home over three years ago, you have prospered. Plus, you are better protected from high interest rates and inflation. But those who rent have been hit with higher leasing rates and have no inflation protection. Therefore, over the past five years, the spread between the haves and have-nots has gotten wider. This is a major reason that the government has made it a goal to facilitate purchases by first time homebuyers. Affordability with high interest rates is an issue, but the long-term rewards are worth it. The conclusion? Lower inflation and interest rates would help make people much happier.