The FED continues to tell us that inflation is not problematic, and any increase will be transitory. However, as is always the case, what's happening on Wall Street is not what's happening on Main Street. The consumer is definitely feeling the pinch of increasing inflation while the stock market makes all-time highs.
For March, the CPI (consumer price index), a measure of inflation, rose by 2.6%, which is larger than the 1.7% increase in February. Commodities like steel, copper, corn, and coffee have been skyrocketing. Year-to-date, the Dow Jones Commodity Index has risen nearly 23%. Lumber, which has more than doubled year-to-date, has increased the cost to build a home. Coffee will increase the price of beverages at Starbucks and other coffee houses. Corn (a 142% increase in the last 12 months) goes into a lot of food groups and will increase their cost.
Americans spend approximately 10% of their disposable income on food, according to the USDA. However, for the poorest Americans, that number jumps to 36% (for 2019). This year, the average American may see their food spend hit 40% of their disposable income, with the poorest Americans may be spending more than 50% on food.
Restaurants are in the cross-hairs of inflation increases, not just from rising food costs but also rising wage costs. Chipotle just announced that it would be increasing wages to $15. McDonald's workers want the same and are expected to strike ahead of the company's next shareholder meeting. For consumers, they are likely to see an increase in prices at fast-food restaurants.
A surge in consumer spending is expected once the economy fully opens and travel resumes close to pre-pandemic levels. However, the consumer may be strapped with higher living costs, which may end up dampening spending.
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