Soaring Prices and Tougher Life in the US... "1 in 3 Faces Financial Deterioration"

Fed Report
"35% of Americans' Finances Worsen... Highest in 8 Years"

As soaring prices have significantly increased living expenses, one in three Americans reported that their financial situation has worsened compared to a year ago.

On the 22nd (local time), The Wall Street Journal (WSJ) reported that according to the annual survey by the U.S. Federal Reserve (Fed), 35% of Americans responded that their financial situation had deteriorated last year, marking the highest level since 2014.

Among respondents, 73% said they were "doing well" or "living comfortably." This is a 5 percentage point drop from 78% in 2021.

A Fed official explained, "In this survey, respondents cited inflation as their biggest financial burden," adding, "54% of respondents said they were significantly affected in terms of budgeting due to high prices."

[Image source=Yonhap News]

In particular, two-thirds of respondents said they stopped using certain products because of inflation. The proportion of those who reported working longer hours or holding a "two jobs" side job reached 18% overall. Black people, households with children, and people with disabilities were found to be under relatively greater financial pressure.

Last month, the U.S. consumer price index rose 4.9% compared to the same period last year. Although this is a significant slowdown from the peak inflation rate of 9.1% in June last year, it still far exceeds the Fed's inflation target of 2%.

As spending increased due to high inflation, the capacity to save also greatly decreased. 51% of respondents said they reduced their savings because of rising prices. The proportion of those who said their retirement plans were progressing smoothly also dropped sharply from 40% in 2021 to 31% last year.

The number of Americans without even $400 on hand has also increased. The percentage of respondents who said they could spend about $400 using cash or credit cards was 63%, down from 68% the previous year.

Although the financial problems of American households have worsened, there is an ironic observation that the U.S. labor market remains stronger than ever. The percentage of people who lost their jobs last year was 5%, down from 7% a year earlier. This means that the rapid rise in living costs has offset the labor market boom.

James Knightley, ING Chief International Economist, evaluated, "It is surprising that households experience financial deterioration at a time when the unemployment rate is at an all-time low and job availability is at an all-time high."