3 reasons why inflation will still cool down — even through it's surged for longer than expected
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Younger Americans aren't filling the gap. Population growth slowed tothe lowest rate since the Great Depressionin 2020, the Census Bureau said in April. Much of the slowdown was powered by weaker family formation among young adults. Millennials have been slammed by two unprecedented recessions in the span of 15 years, leaving many with scarred finances. And growth is unlikely to rebound. The Brookings Institute forecasted in June that fertility rates will likely lag replacement rates for the foreseeable future,
Insider's Hillary Hoffower reported.A sustained surge in inflation would require consistently strong demand. With population growth expected to slow further, Americans' spending is more likely to stall than soar.Rich Americans are hoarding cash
Even if the population grew faster, spending probably wouldn't change much. Research shows low-income Americans have the highest marginal propensity to consume, meaning they spend more when they get a raise or a bonus. Conversely, the wealthiest Americans spend less of their bonuses and save much of the cash instead. headtopics.com
That gap stands to keep inflation anchored. The richest 5% of Americansheld more than two-thirds of the country's total wealthat the end of 2016, according to a paper published by the National Bureau of Economic Research. Meanwhile, analysis from Pew Research shows middle-income and low-income Americans holding smaller and smaller shares of US wealth through 2016.
Should the trend continue, more of the country's wealth will be saved by the richest Americans. That stands to dampen spending by the rest of the population and keep prices from soaring higher.The global supply-chain crisis is on the declineMuch of the higher inflation seen today comes from a worldwide shipping mess. A global energy crunch, factory blackouts, shipping delays, and port bottlenecks have strangled supply chains. At the same time,
Americans' spending has kept climbingas the country reopens.Demand is booming, but companies are struggling to shore up supply. That's fueled price hikes throughout the economy.Yet experts already think the worst is over. There are signs the US is"
past the peak pinch," and the supply-chain tangle will see"significant improvement" by the second half of 2022, Jefferies economists led by Aneta Markowska said earlier in October.The White House called on companies including FedEx, Walmart, and UPS earlier in October to work 24/7 to ship orders and work through massive backlogs. Separately, the Port of Los Angeles announced on October 13 it would work around the clock to process container ships. More recently the ports of Los Angeles and Long Beach said they would headtopics.com
start fining shipping companies $100 each dayfor every container left on the docks.The cleanup, then, is underway. As shipping lines heal, supply is expected to bounce back and better match demand. The shortages that have powered inflation higher throughout 2021 are quickly fading away.
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