The Big Insight: Consumer Demand is a Major Factor Driving Inflation
While logistical issues like delays in shipping and work shortages at ports have received the bulk of media attention as factors driving price increase, a significant increase in consumer demand is playing a huge role too.
As the holiday shopping season nears its conclusion, here are five facts on consumer demand in the U.S.:
1. U.S. household savings more than doubled in 2020 from one year earlier.
Stimulus funding from Washington and limited consumption options during the pandemic led consumers to save more than 18% of their disposable income in 2020, compared to just 8% in 2019. Many consumers are now spending some of those savings.
2. Consumers started their holiday shopping earlier this year.
A McKinsey survey found that nearly half of consumers started shopping for the holiday season in October or earlier. Among those who started early, 51% said they were concerned about product availability, and 45% said they were concerned about shipping delays.
3. Demand for consumer packaged goods (CPG) like food, beverages, clothes, and household products is higher now than it was in the first weeks of the COVID pandemic.
While images of “panic buying” of household staples like toilet paper in March 2020 might suggest this was just a one-time spike, demand for consumer goods has steadily increased since that time.
4. Though semiconductor sales are up 26% over the past year, demand continues to outpace availability.
Demand for microchips has risen, especially for driver assistance systems and other auto and home automation products – and supply is not keeping up. At the end of the third quarter, Apple faulted chip shortages for $6 billion in missed sales.
5. Hourly pay for workers is up by 4.8% over the past year, with average pay now $31.03 per hour.
According to Jason Furman of the Kennedy School of Government, wage growth has been even faster among the lowest-paid workers, with companies like Chipotle, CVS, and Target raising starting pay to $15 per hour and more states raising their statutory minimum wages.