A just-published report examined a key U.S. (and global) political issue, namely the soaring cost of living, i.e. the affordability “crisis”. Indeed, U.S. consumer price levels have risen at a far more rapid rate than the trend from 2000-2020.
However, wage and income levels have also increased significantly this decade, even more quickly than the increase in consumer prices. Consequently, the rise in consumer prices has not slowed still-solid consumption: households have been able to “afford” higher prices because of income gains due to the tight labor market.
The U.S. economic expansion will persist until corporate profits deteriorate and layoffs accelerate, thereby undermining incomes. At that point, consumption will slow and companies will have a harder time raising selling prices. This phase is still somewhere in the future.
