City CEO Warns of 'K-Shaped Consumption': "Low-Income Groups Becoming More Cautious in Spending"

Jane Fraser, CEO of Citigroup, warned that a so-called 'K-shaped consumer polarization' is emerging, where only ultra-high-end and ultra-low-end products are being sold. She diagnosed that the economic burden caused by prolonged inflation is concentrated on low-income groups, widening the consumption gap.

[Image source=Reuters Yonhap News]

Attending the Milken Global Conference, Fraser said in an interview with economic media CNBC on the 6th (local time), "In recent quarters, spending by wealthy customers has increased significantly, but low-income consumers are becoming more cautious in their purchases," adding, "They are increasingly feeling the pressure of higher living costs."

She pointed out that "even if they have jobs, their debt repayment levels are higher than before," highlighting the increased spending burden on low-income groups in a high-interest-rate environment. She continued, "They do not have 30-year fixed-rate mortgages at low interest rates; they are paying rent," adding, "Therefore, they definitely feel more inflationary pressure. I hope to see an economic situation where interest rates can be lowered soon."

CNBC noted that expectations for interest rate cuts by the Federal Reserve (Fed) have retreated compared to earlier this year due to high inflation and strong employment figures, indicating that borrowing rates for Americans will remain high for the time being. This is a factor that could further deepen the consumption polarization pointed out by Fraser. Earlier, Citigroup also highlighted this trend of consumption polarization during its first-quarter earnings announcement, noting that while total credit card spending increased, spending at retailers decreased.

On the same day, Fraser assessed the recent trend of slowing inflation as "moving in the right direction." She said, "Service inflation is definitely stickier," but added, "I hope inflation falls faster than it is now." Regarding a soft landing where inflation eases without a recession, she evaluated it as "difficult." She added, "It is hopeful, but achieving a soft landing is always a challenging task."