00:00Inflation remains a major concern for Americans as prices stay elevated and global tensions add new pressure to energy costs.
00:08From grocery bills to housing and gas, consumers are feeling the strain of a still uncertain economic outlook.
00:14Joining us now to break it all down is Elizabeth Renger, senior economist at NerdWallet.
00:19Thank you so much for being here, Elizabeth.
00:21Hey, thanks for having me, Justine.
00:23Yeah, we have so much to get to here.
00:25So many concerns on Americans' minds.
00:27So how would you describe the current state of the U.S. economy based on the latest inflation data?
00:33I would say the economy is strong, but there are certainly risks that have risen over the past month with
00:40the war in Iran.
00:41We know that people are feeling incredibly uncertain about their near future.
00:47Businesses as well don't know where the economy is headed and are feeling increasingly uncertain about their place within it.
00:53So consumer sentiment, for example, is low and in some cases the lowest we've ever seen it.
00:59Wow.
00:59It's so many different factors contributing to all of this.
01:02What are the most recent CPI readings telling us about the trajectory of inflation right now?
01:07Well, so inflation was elevated before the war began.
01:10So we kind of went in in a not ideal situation.
01:13But now we're seeing it spike again or rise again because of that initial oil price shock.
01:19And that's true at both the consumer level and the wholesale level.
01:22And when inflation is elevated at the wholesale level, it means we're going to see continued price growth at the
01:27consumer side of things as well.
01:29So what this tells us is that the current war in Iran is adding more inflationary pressure to an already
01:36high inflation rate.
01:37And consumers are going to be feeling the sting of that for probably months to come.
01:41Yeah, I'm sure that we all will be.
01:43And we've all seen those prices going up, whether it's at the grocery stores or at the gas pumps.
01:47And we've been hearing about this sticky inflation.
01:49So tell us what that means for everyday consumers.
01:54Well, inflation can be thought of as all the things we spend money on.
01:57And so we can look at the inflation rate of particular categories like goods and services or even more detailed
02:03like food and oil or housing and transportation.
02:07Some of these things take longer to come down than others.
02:11Shelter inflation is one notoriously sticky place where it takes a while once inflation has risen there for it to
02:18come down.
02:19We have seen some easing in shelter inflation, but there is some sticky inflation in places like transportation services, health
02:25care services.
02:27That people can expect that to take more time to work its way throughout the economy.
02:32And then when you consider the Iran war with that, we're going to see prices bump up in places like
02:37food, transportation costs, of course, gas prices.
02:41But then also goods prices as it takes gas and oil to manufacture things that we all, you know, line
02:46our shelves with.
02:48Yeah. And how important is everything going on in the Middle East to this conversation?
02:53Obviously, it's creating, you know, causing prices to go up.
02:56It's causing energy prices to go up all around the country and around the world.
03:00But how much is that impacting the economy right now?
03:03Is it really the main factor?
03:05I would say it's hugely important.
03:07So an oil price shock, which is what we're thinking of, that initial impact of the economic shock of the
03:13war in Iran, can really be pervasive across the economy.
03:17The first order effects are the things we see immediately.
03:19So the price changes at the pump.
03:21It didn't take inflation data for us to know that that was happening.
03:24Right. But over time, it bleeds into the rest of the economy.
03:27So it impacts industries like transportation.
03:29It impacts agriculture.
03:31It impacts manufacturing.
03:32And then it begins to impact all of the things that depend on those.
03:36Right. So the groceries that rely on trucks and planes to get to our grocery store, the materials that are
03:42made by U.S. manufacturers.
03:44All of these things are going to feel the sting of the oil price shock from the war in Iran.
03:50So if the ceasefire holds, that will continue to take months to seep into the economy.
03:55If it does not, then we're looking at more pain and for longer.
04:00Yeah. And again, there's so much uncertainty.
04:01You mentioned the ceasefire.
04:03There's been other peace talks, talks about reopening the Strait of Hormuz or not.
04:07So much uncertainty, so much we don't know about what's going to happen.
04:10But if these oil prices do remain elevated and volatile, what does that mean for consumer costs as we go
04:16through the end of this year?
04:17I mean, how much do you think that that's going to increase those costs even more?
04:22Or are they going to kind of stay at this elevated level already?
04:25So it will continue to increase some costs because it takes a little while to get into some of those
04:30categories.
04:31So those costs that started with oil prices take a little longer to get into goods manufacturer prices that we
04:37pay for at stores.
04:38So people are going to continue to see the impact sort of trickle into the economy in different categories.
04:43Also, we know that gas prices rise quickly and come down slowly.
04:47So just like it takes a long time for those rises to come into the economy, even if the war
04:52is resolved in the next few months and we start to see gas prices come down,
04:56it's going to be a while before we see that trickle, those benefits trickle into the other side of the
05:01economy as well.
05:01So I think people overall can anticipate higher prices for the immediate future.
05:07And it really just makes sense to revisit your budget and think about the things within your control when we're
05:12faced with things like this.
05:13Yeah. Tell us a little bit more about that, about how households are adjusting their spending habits,
05:18because, again, things are costing so much more and there's so much uncertainty about how long they're going to keep
05:23costing at this higher price.
05:25So tell us a little bit more about how these households are adjusting their spending habits and how they're thinking
05:30moving forward.
05:31Right. Well, recently, we found that two thirds of Americans believe the United States will enter a recession in the
05:37next 12 months.
05:38And I say that less as an indicator of a pending recession and more of how people are feeling.
05:44You know, people are really uncertainty. They're feeling on really uneven footing.
05:47They're a little trepidatious. And so we may begin to see them pull back in spending in certain categories.
05:53We've already seen consumer spending growth slow, though it hasn't turned negative.
06:00So what I would recommend to people is to focus on the things that they can control.
06:04So often when we're hit with economic news like this and, you know, the potential for rising prices or, you
06:10know, a soft labor market, it can be like, well, what do I do?
06:12What does that mean for me? Right. Too often we feel like we're the victim of the economy, but we're
06:16not really impacting it.
06:17And so I would say the things in your household that you can impact again are revisiting your expenses, thinking
06:23about whether you should reallocate some of them elsewhere,
06:25and then always checking in on an emergency fund. It's not always an easy thing to build.
06:30And I feel like you're never done building an emergency fund.
06:33But the more that you can sock away, the more secure you'll feel and the more secure you will be
06:39if the economy should take a downturn or if you do have to account for rising prices like these.
06:44Those are such good tips for people to keep in mind.
06:47How worried do you think that people really need to be? Because I know some people might hear emergency funds
06:52and they start, you know, getting more scared, having more anxiety about things.
06:56So how worried do you think that people should be, especially considering the fact that it might take, as you
07:01said, a long time for prices to readjust?
07:04Well, I don't think people should be worried because it's not really a productive way to live your life. Right.
07:09It's stressful. I do think that the economy is strong.
07:13The economy has proven incredibly resilient over the past year and a half, two years, even in the wake of
07:17COVID.
07:18That's largely being driven by consumer spending and largely by spending by people who have benefited from stock gains and
07:26real estate gains.
07:27But overall, the economy has maintained resilience.
07:30And my base case is that it will continue that direction despite these rising prices.
07:35So I don't think people necessarily need to be worried.
07:38But I do think taking steps like revisiting your emergency fund, even though it's called emergency fund and that sounds
07:44very scary, that does give you like way more security and how you feel about the economy around you and
07:50your place within it.
07:52That's so important to be thinking about your actual feelings about things and what's going on in your head and
07:57what you can control.
07:58So those are excellent tips.
07:59Again, when you look towards the rest of the year, the second half of the year, what risks or warning
08:04signs are you really watching closely?
08:06Well, I think I'm primarily looking at the labor market.
08:10Honestly, we came into the year with a pretty cool labor market.
08:13It's been really hard for people that want to find jobs to find those jobs or people who want to
08:18leave their current job for a better paying job to do that.
08:21It's just been, you know, that that low hire, low fire job market that we've been in.
08:27If I was looking for a place to identify a downturn in the economy, I would be looking at the
08:33labor market and then specifically at layoffs.
08:35We haven't seen significant layoffs hit yet, and I don't think they necessarily will, but I think that would be
08:42a red flag to me.
08:43Price growth is very uncomfortable for houses, but I think as far for households, but I think as far as
08:49like economic warning signs, I would be looking to the labor market.
08:53Wow. So many amazing things that you've given us to think about.
08:56Thank you so much for talking through all of this.
08:58Elizabeth Renter, Senior Economist at NerdWallet.
09:00We really appreciate it.
09:02No problem. Thank you.
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