How inflation is changing the way some Americans celebrate the holidays

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• Geoff Bennett:

  The holiday season is in full swing, and for Americans whose paychecks haven't kept pace with inflation, that leaves little money for extras like entertainment, travel or shopping. Stephanie Sy has more.

• Stephanie Sy:

  'Tis the season for gift giving and cheer. But as the holidays approach, inflation for many Americans is altering how they celebrate. In a recent survey, nearly 70% of Americans said inflation was a concern. And they worried they wouldn't be able to buy as much this year compared to last, for some Americans increases in prices have had little impact on their finances. For others, inflation is making the holidays harder.

• John Callow:

  We're buying things now that we might not need. But we know we'll use six months, a year down the road, because they aren't going to get cheaper, later on.

• Alison Kovach:

  I really have to be conscious about the food prices, what we're buying, where we're going, how much gas we're using.

• Sylvia Petro:

  Overall, I could see the increase in prices, oil, gas, food, medical care, normally, we would maybe go out a little bit more often travel a little bit. But right now, we try to limit that a little bit to save on gas cost anything, we're dealing with traveling a lot.

• Alison Kovach:

  It's not just food prices, it's not gas prices. It's not utilities, it's everything all at once.

• John Callow:

  I have friends that are definitely trades people that are, you know, they, in good times they're spending $100 a week on gas, and now they're spending, you know, probably $150.

• Sylvia Petro:

  It makes me think about what do I want to save money for? What do I want to do in the future? How will I help mitigate the impact of inflation?

• Alison Kovach:

  Christmas came so fast. It's like, what do we get it? You know, like all, you know, okay, well, you want this, you need this. And it's just — it's a lot. It's overwhelming at times. And it feels almost as like, there's like a black cloud overhead. And you're just afraid of what's going to happen. And you have, you know, the change of spending is worried what's going to happen down the line? Is it going to get worse instead of better?

• Stephanie Sy:

  For more, I'm joined by Neil Irwin, Chief Economic Correspondent at Axios. We just heard from a number of people who are concerned about high prices. But isn't there some data just in the last month showing that we may be seeing a moderation in inflation? Are things getting better?

• Neil Irwin, Chief Economic Correspondent, Axios:

  So, there's good news and bad news on that. The truth is inflation does seem to be starting to slow and there's some good reasons to think it will slow more in 2023. But it's still high. So, it hasn't come down yet. Prices, we just got a number this past week, for example, wholesale prices up 7.4% over the last year and in November, that was 8.1%. So that's improvement, but 7.4% inflation still really, really high. If you're on a budget, if you're trying to make ends meet, that's not great news for American consumers.

• Stephanie Sy:

  All right. I want to get into all of that. But let's take A few steps back and remind us Neil how we got into this situation in the first place, inflation that we have not seen in a generation?

• Neil Irwin:

  That's a lot of things that converge at once. And the biggest is probably that this pandemic really threw the entire world economy for a loop. You had cutbacks on production during the pandemic, you had a combination of massive stimulus out of the U.S. government and other world governments, you had the Federal Reserve, keeping interest rates low for a very long time, even as the economy took off. And so, all those things together created too much demand, too little supply. So, a shortage of lots of different things of workers of goods, of shipping capacity, all sorts of things like that energy, gasoline, on the other side, you have demand that was been — we have demand has been stimulated and has been through the roof, the combination of too little supply, too much demand. That's higher prices.

• Stephanie Sy:

  And I do understand that some of the supply chain issues when it comes to just that one factor are starting to be ironed out. But as you say, inflation is still high, the Fed is still worried about that. I want to take just Cyber Monday and Black Friday sales, though, and look at that for a minute, because we did see historic sales on that — on those days. Does that make sense to you that type of consumer behavior in the face of what we're looking at right now with higher prices?

• Neil Irwin:

  Yeah. What we see from consumers is yes, they're strained by inflation, they're paying more for groceries, more for gasoline than they were a year ago. But they're dealing with that by using the savings they accumulated during the pandemic, they're spending more money, even despite those hurdles. And as you say, the supply chain stuff has gotten better. So, store shelves, inventories look a lot stronger than they did a year ago. So, there are goods on the shelves if you want to go by and people are taking advantage of those pent-up savings and those stimulus checks from a year ago, things like that, to make it happen.

• Stephanie Sy:

  You know, the other factor and I know you and your colleagues at Axios have written a lot about this is this tight labor market. We still have very low unemployment, and the Fed has to grapple with that, that's part of their mandate. So, given that you have still high inflation, a tight job market, and you have wages that have increased, taking all that into account, what's the sort of macroeconomic picture, what is the greater impact of inflation on the economy?

• Neil Irwin:

  So, what's been happening over the last year or so is unemployment is very low, people can get jobs and people are getting raises, but inflation is higher than those raises. So, if you got a 5% raises here, good for you. That sounds great. But when inflation is 8%, that 5% raise doesn't go quite as far and doesn't sound so good. And that's the weird thing about this labor market. We've had extremely remarked tightness, lots of jobs out there, but real wages actually declining, inflation adjusted wages.

  The question is, how does that change in 2023? Can we — you know, will live more become less hot? But will we see inflation come down enough so that people can actually have greater purchasing power with their paychecks? That's the big open question for next year.

• Stephanie Sy:

  You also have the Fed meeting again next week. And a lot of speculation about whether they will, again, raise interest rates, I'm sure you're watching that. What specific ramifications would we expect to see if we see yet another interest rate rise?

• Neil Irwin:

  Yeah, it looks very likely that what the Fed is going to do on Wednesday is raised their target interest rate, another half a percent. We're getting up into the mid to high force now that's higher than it's been in many years, really since 2007. So, you know, that means money is more expensive, borrowing money is more expensive, that is doing its job, it's slowing the economy, it's slowing growth, it's lowering asset prices, it means the stock market has had a rough year, and the goal is to slow the economy and bring inflation down. So far, the first part is starting to happen. The second part inflation coming down is not quite as clear.

• Stephanie Sy:

  Okay, so that is also related to all the talk about the big are, the potential for recession in 2024. How are you viewing that in relation to the Fed's decision next week?

• Neil Irwin:

  Look, the odds of a recession are definitely higher than usual. We could very well find ourselves in a recession in the next few months. Hard to argue we are in one right now, job growth has remained very strong. Growth seems to be positive. But the idea that we find ourselves in a recession, or at least a soft patch in the economy where there's a somewhat higher unemployment rate seems more likely than not next year. I think the question is just how severe is that? How widespread is the pain? Whether it's technically a recession or not is not the question. The question is, does this affect the ordinary American in ways that are that are really painful or can we get out of this inflationary situation in a more measured kind of way that doesn't hurt so bad?

• Stephanie Sy:

  Well, everyone hopes for the latter. And everyone has that that word that you used earlier weird when it comes to the current economic picture. Neil Irwin, Chief Economic Correspondent at Axios, thanks so much for joining us.

• Neil Irwin:

  Thanks, Stephanie.