Higher fuel costs, however, have caused consumers to expect a pickup in inflation in the next 12 months -- to 5.5%, compared with the 4.6% they expected in February.
Standard economy theory states that when people have higher inflation expectations they will spend more now while their dollars are more valuable. If this assumption is true, we could have a partial explanation for why consumer spending has been resilient for about the last year.
I should add, I'm not a bit fan of the psychological side of economic theory, but that's just me arguing economics is trying to explain something way beyond its boundaries.
1 comment:
In order for inflation to have a psychological impact on people they have to be aware of it. When you're talking a small difference, people who aren't seriously paying attention aren't going to notice enough that behaviors will change.
Personally I've not changed my spending behavior and I'm well aware of what's going on. Having said that I've been kind of hesitant about where to invests in the market because I sense we're on a cusp right now and it's not clear to me where the good bets are. I know they are not in anything related to real estate, that's for sure :)
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