The Bank of America Institute reports that Bank of America customers with debit and credit cards increased their spending by 9% in May. On the surface, that looks like good news.
But a closer look suggests that consumers aren’t necessarily spending more on discretionary items. In many cases, they’re simply spending more to buy the same amount of gasoline and groceries.
For example, spending at the gas pump as a share of total card spending surged to 7.8% for the week ending May 28, up from 6.4% in February. For households earning less than $50,000 a year, the average share of gas spending rose to 9.5%.
"Our card data shows continued growth in consumer spending, but inflation is challenging households' purchasing power," said David Tinsley, senior economist for the Bank of America Institute. "That said, spending on services like travel and entertainment remained strong and households continued to have higher savings than they did before the pandemic. Overall, we still remain cautiously optimistic for the U.S. consumer."
Economic ‘perfect storm’
Sajan Devshi teaches business and economics and operates Learndojo.org. He says the economy faces a “perfect storm” of consequences beyond the control of policymakers.
“Inflation has skyrocketed due to the huge amounts of money injected into the world economies due to COVID-19 across the globe,” Devshi told ConsumerAffairs. “When you have an over-supply of currency pumped in with low levels of productivity, which is effectively what happened with COVID as many businesses were unable to operate, inflation increases exponentially and we are seeing this globally now.”
While inflation was rising in late 2021, the Russian invasion of Ukraine and resulting sanctions on Russian oil this year sent oil prices spiraling out of control. The resulting jump in gasoline prices has been a major driver of inflation.
“Gas and energy prices play a huge role in the structure of the modern economy,” Yoni Mazor, chief growth officer at GETIDA, told us. “The prices of driving cars, booking flights, shipping products, and much more get greatly affected by the rise of gas prices. This is definitely contributing to the overall level of inflation and hits the pockets of consumers and their daily spending in many ways.”
Inflation, meanwhile, shows no sign of slowing down. On Friday, the Labor Department reported that consumer prices increased 1% from April to May and are 8.6% higher over the last 12 months.