With the easing of price surges, consumers, especially those burdened by inflation, should be feeling the pressure relentlessly. Data indicates that prices, although relatively high, have started to settle. The consumer price index, a measure of inflation, has seen a year-on-year increase of 3%, the lowest it has been since March 2021. Similarly, the personal consumption expenditures price index has recorded its lowest annual level over two years.
However, the reality is that even with this price easing, a substantial portion of adults, 61%, are still living paycheck to paycheck, according to a recent LendingClub report. This figure hasn't seen a change from last year.
Price spikes have substantially impacted lower-income earners, particularly those spending more of their budget on essential goods like food. LendingClub's data indicates that about 75% of consumers earning under $50,000 annually, and 65% of those earning between $50,000 and $100,000, lived paycheck to paycheck as of June.
On the contrary, a smaller fraction of top earners have reported financial difficulties. Of those earning $100,000 and more, only 45% claimed to be living paycheck to paycheck, according to the same report.
In a study conducted by CNBC's Your Money Financial Confidence Survey in March, it was found that 52% of adults, including top earners, feel more financially stressed than before the Covid pandemic in 2020. This is attributed mainly to inflation, increased interest rates, and inadequate savings. This survey identified that 58% of Americans are living paycheck to paycheck.
People Relying Heavily on Credit Cards
Despite the easing inflation, over half of all US consumers still struggle to maintain their everyday lifestyle. Many are being compelled to rely more heavily on credit cards or to deplete their savings, leaving them financially exposed.
Greg McBride, the chief financial analyst at Bankrate, shed some light on this issue. He said, "Household budgets remain strained, and for many, credit cards are bridging the gap." McBride added, "People aren't resorting to 20% financing because they have alternatives. They are doing so because they have no other choice."
To keep inflation in check, the Federal Reserve again increased interest rates last week. Fed Chairman Jerome Powell stated that future interest rate decisions would be based on incoming data and not on a pre-established policy trajectory. Despite recent positive trends, central bank officials believe inflation is still too high. They're seeking multiple months of robust data before considering any shift in direction.
