Inflation will cost Americans an extra $5,200 this year: Bloomberg
- Inflation will cost the average American household an additional $5,200, Bloomberg economists said.
- About $2,200 of that inflation tax will come from more expensive food and energy, they added.
- Additional savings and wage growth will cushion the blow, but rising prices will still force Americans to pay more.
Americans haven’t had to worry too much about factoring inflation into their budgets for the past four decades. This changes in 2022.
Searing inflation that is expected to last all year will leave the average American household spending $5,200 more than a year earlier, Bloomberg economists Andrew Husby and Anna Wong said in a Tuesday article. That comes down to $433 more per month on the same goods and services as last year.
Strong wage growth and excess savings from the start of the pandemic will help soften the blow, but looming economic trends are expected to compound the inflation problem in the coming months, the team said.
“The accelerated depletion of savings will increase the urgency for those left behind to join the labor force, and the resulting increase in labor supply will likely dampen wage growth. “, they said. In other words, as people spend their accumulated savings, they will have to go back to work and employers won’t have to pay as much to entice them.
The estimate offers yet another grim characterization of this year’s sky-high inflation. Closely watched inflation indicators like the Consumer Price Index have already shown prices rising at the fastest pace since 1982. Inflation-adjusted wage growth has been negative for most American workers last year, which means that their purchasing power has weakened despite wages rising at a historic rate. The economy is recovering, but soaring prices are making the recovery painful for almost all Americans.
Food and energy costs, which include gasoline and home heating, account for $2,200 of 2022 inflation, economists said. This is about to hit low-income Americans the hardest. These households have the least savings to protect against rising prices, and wage growth is expected to slow throughout the year as more people return to look for work. Even if the cohort’s average wages increase 10% in 2022, food and energy inflation could fully offset their wage growth, Bloomberg economists said.
Recent world events could push the projected price even higher. Russia’s invasion of Ukraine has already pushed up food and energy prices and thrown new headwinds into global supply chains. If the conflict persists, it could further fuel inflation.
Bloomberg estimates that, in a bearish scenario, crude oil prices could climb as high as $160 a barrel. Separate estimates suggest that would take the average US gas price above $5 a gallon. The national average stood at $4.24 on Tuesday, according to AAA, a level that is already near record highs.
Inflation won’t be ruinous, economists said. Bloomberg estimates that of the $2.5 trillion in additional savings accrued during the pandemic, only about 27% will go to higher costs. That still leaves room for “a solid increase in overall spending,” the team said. Much of that extra money belongs to the bottom 80% of earners, they added, meaning they will be further supported by savings in the pandemic era.
With prices rising across the board, it will be nearly impossible for Americans to dodge this year’s inflation tax. But with the
battling soaring prices and still strong pandemic economies, 2022 could represent the worst of the high inflation era.