Understanding the wealth effect Economists know that consumers spend more when their wealth increases, even if their income remains the same. However, if wealth decreases, the opposite occurs. The concept, known as the wealth effect, has spurred the economy for well more than a decade as savers’ 401(k)s and other retirement accounts increased year-after-year. At the same time, real estate values have also risen. Of course, most of the time these gains are only paper profits unless you sell your house or withdraw money from your portfolios. Nonetheless, there is a behavioral element to this concept. People tend to spend…
Insights & Advice
Tag: consumer spending
Does this look smaller to you? Shrinkflation is here.
By now, you may have noticed that something doesn’t look quite right on your grocery shelves. Could it be that bag of chips, or maybe that roll of toilet paper, seems to have shrunk? Let me assure you it is not your eyes; we have all come down with a bad case of shrinkflation. Shrinkflation is an actual term, according to Wikipedia, which means “a rise in the general price level of goods per unit of weight or volume, brought about by a reduction in the weight or size of the item sold.” I must admit that, until recently, the…
Stagflation is here
I wish people would stop talking about stagflation. It scares me. What scares me most is that there’s a greater than zero percent chance of it being an unwelcome guest for a good chunk of 2022. The term “stagflation” became popular during the 1970s as an oil price shock rattled the economy. (Sound familiar?) Stagflation refers to a period when the economy is simultaneously experiencing higher-than-normal inflation and economic stagnation. Higher inflation? Do you think that’s happening now? Yeah, it is. Economic stagnation? I’d be surprised if Gross Domestic Product growth surpasses one percent in the first quarter of 2022….