Recent Inflation Data: Consumers Living Paycheck to Paycheck Will Face Difficult Choices

We have been here previously. But not for 40 years, and it wasn’t nice then, and it isn’t today. The Labor Department’s newest inflation index, released Thursday (March 10), revealed that prices are growing at a rate not seen in 40 years.

At this rate, inflation becomes the robber who steals from everyone — albeit not evenly — and frequently deprives middle- and working-class individuals and families of a disproportionate amount of buying power.

Though the consumer has been able to maintain spending — maybe unexpectedly — during the previous several years, one has to ask where the tipping point lies.

Naturally, the February numbers were boosted by rising energy prices, exacerbated by the threat of war in Europe. Now that war has begun — and because energy (and other) costs increased even more in March, February’s inflation figure probably pales in comparison to March’s.

Even when energy and food costs are excluded (admittedly, they have been unpredictable), consumer inflation was 6.4 percent on an annual basis, up from 6% in January.

However, gas and food are necessities of everyday living, and “removing” them from the equation only demonstrates that, well, everything is becoming more costly.

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It implies that customers, particularly those with limited financial wiggle space, will decide how to spend their money.

There is no simple route forward for the growing number of paycheck-to-paycheck consumers.

According to the most recent data, slightly under half of the customers earning $100,000 or more per year fall into this category – as do a stunning 77% of people earning less than $50,000.

There are already warning indicators that expenditure will be restricted for this latter profile. PayPal said as much in its most recent financial report a few weeks ago. This week, Macy’s Chief Financial Officer stated that inflation affects lower-income clients.

In terms of budgeting, PYMNTS research indicates that 58% of persons having difficulty paying their expenses have a great interest in bank-provided purchase now, pay later (BNPL) items.

Many firms vying for this market have seen high volume growth in BNPL payments – most notably, Marqeta said yesterday night that BNPL payments accounted for more than 10% of its entire processing volumes.

As previously observed, BNPL has been utilized by a sizable portion of the population as a budgeting tool to avoid overspending and avoid the costs associated with traditional credit.

Naturally, if consumers agree to weekly or monthly installment payments, they may have difficulty meeting those commitments as well.

However, if the expenditure is significantly reduced, those enterprises that enable BNPL would also face headwinds – demonstrating that no one is immune to inflationary pressures.