Consumers caught in triple stack of pain
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Illustration: Sarah Grillo/Axios. Stock: Getty Images
Americans desperately want day-to-day life to be more affordable. Right now, they aren't getting it.
The big picture: The pinch of high prices for food, energy, housing and more has driven seismic shifts in public opinion over the last four years. Since the onset of the Iran war, the cost of living looks likely to get worse, not better, at least in the near term.
- Energy prices are surging, interest rates are on the rise, and the stock market is looking wobbly — a triple whammy for U.S. households.
By the numbers: The national average for a gallon of gasoline is poised to surpass $4, up from about $3 a month ago — and is set to rise further the longer the Strait of Hormuz remains blocked.
- Even before the latest energy shock, electricity prices were up 4.8% over the last year, and piped natural gas up 10.9%.
- Higher energy prices will also likely show up in more expensive airfares and in shipping costs that could ripple through all sorts of goods.
- Grocery prices are up 3.9% over the last year, and Iran's blockade is throttling the global supply of fertilizer, which could create new pressures on food prices come harvest season.
Of note: The impact of higher gasoline prices alone may roughly offset higher anticipated tax refunds due to last year's One Big, Beautiful Bill Act, per analysis from Stanford economists.
Driving the news: The Organisation for Economic Co-operation and Development this week projected U.S. inflation will reach 4.2% this year. Before the war, the international research and policy group had projected 3% U.S. inflation.
- That is lower than the inflation rate reached in 2022, the peak of the post-pandemic supply chain snarls and the Ukraine war's impact. But 4%+ inflation would come on top of five consecutive years of elevated inflation — consumer prices are up 25% since December 2020.
- And the job market is much weaker now than it was in 2022, with less hiring and smaller pay increases to help offset higher costs.
- It's not just professional forecasters, either. In the University of Michigan consumer sentiment survey released Friday, respondents' expectations for inflation over the next year soared to 3.8% in March from 3.4% in February.
State of play: Prospects of higher inflation and higher government borrowing have fueled sell-offs in stocks and bonds that are simultaneously depleting household wealth and making it more costly to borrow money to buy a home.
- The S&P 500 is down nearly 7% so far this year. Stock market wealth has helped support overall consumer spending, especially by the affluent.
- The U.S. government's borrowing costs have risen about half a percentage point since the start of the war, and home mortgage rates have gone up even more.
- A month ago, the average 30-year fixed-rate mortgage slipped to under 6% for the first time in three years. Now it's back up to 6.64%.
What they're saying: "Consumers are tired of high prices," Richmond Fed president Tom Barkin said in a speech Friday. "They're deferring purchases, trading down and moving down to lower-priced retailers and private label."
- It's hard to ignore data that "suggests our progress on inflation may be at risk of stalling," he said. "And that was before the oil price spike — the latest in a series of cost-increasing supply shocks after the pandemic, semiconductor chip shortages, the war in Ukraine, tariffs and immigration enforcement."
