People are starting to dip into the savings that they've built up over the pandemic, but it might not have an effect on inflation just yet.
Between stimulus checks and simply staying home and not spending during the pandemic, households saved about $2.7 trillion, according to Moody's Analytics.
“Either they don't really expect recession to come or potentially, more likely in this case, some people are feeling the squeeze perhaps from inflation and the fact that wages are not rising necessarily as fast as prices,” said Nikolai Roussanov, a finance professor at the University of Pennsylvania.
He said that people will pull from savings until the job market tightens. If they start worrying about layoffs and downsizing, he said that is when they'll start making sure that they have money set aside.
“If consumers really hit the brakes and then start being really thrifty with their spending, then we see this paradox of thrift effect where all of a sudden, the spending disappears and then of course hurts the economy and jobs start disappearing,” he said.
He said that spending is just one contributor. Supply chain issues and energy prices from the war in Ukraine are also contributing to inflation. Roussanov said that he does not expect lifting the pause on student loan repayment to have a major effect on savings.
Roussanov said that most people who have large loans don't have large savings
In the last year, overall consumer spending has been up 8.1%, driven by high gas prices. When excluding spending at gas stations, overall spending has increased by 5.3%.