Lonnie Golden, a professor of economics at Penn State Abington, explains that as long as people continue to spend on various sectors such as dining out, travel, and healthcare, inflation rates are unlikely to decrease. This cycle of increased spending driven by growing asset values illustrates the connection between consumer confidence, economic growth, and inflation rates.
As home and stock prices rise, portfolios and savings accounts also grow, giving many Americans the confidence to spend more on entertainment and travel. This trend is known as the “wealth effect,” where rising asset values lead to increased spending without requiring loans. According to Raymond Hill, an emeritus professor at Emory Business School, Americans are traveling to Europe and not worrying about high mortgage rates because they are not borrowing money to buy houses.
Dr. David Bieri, an associate professor of public policy at Virginia Tech University, explains that higher home and stock prices have led to significant increases in people’s financial portfolios, providing them with more disposable income. As the economy strengthens, inflation becomes more stubborn, impacting the Federal Reserve’s plans.
The connection between consumer confidence, economic growth, and inflation rates is clear: increased spending driven by growing asset values leads to a stronger economy but can also contribute to higher inflation rates.