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Today's unofficial but traditional start to the holiday shopping season spotlights a contradiction of sorts. On the one hand, Commerce Department numbers show Americans spending even earlier this fall than they did last year amid predictions of increased spending. On the other hand, we're still in a pandemic. We're seeing the biggest increase in inflation in nearly 30 years, and surveys are showing really low consumer sentiment. Now, to help us understand what's going on, we're going to bring in economist Mahir Rasheed of Oxford Economics.
Welcome to the program.
MAHIR RASHEED: Yeah, thank you guys for having me. It's great to be here.
CORNISH: So when we read the data coming through saying people are spending more than last year right now despite economic worries, what does that say to you?
RASHEED: We're seeing this divergence in exactly who is really pessimistic. So we're seeing these consumers at the lower end of the income spectrum who are seeing inflation outpace wage growth despite the fact that, you know, lower-paying jobs are actually seeing some really strong historic wage growth right now. And we also have older consumers, who are also being hit pretty hard by current inflation pressures, especially given the fact that older consumers typically have fixed incomes. So that kind of explains why we're seeing these poor sentiment readings.
CORNISH: So you're saying you have people who are low-wage workers, and you have older people who are really feeling the high prices. So then let's talk about the people who are really spending and who aren't feeling so bad about the economy. Who are they? Where is their income coming from?
RASHEED: Right. So it's mostly coming from upper-income households who we've seen during the pandemic have accumulated a pretty large mountain of excess savings, and we're now seeing them gradually unwind this pile. The other thing that's worth noting in that is that we've seen equity prices and risk assets, which is where a lot of upper-income households really get a lot of their wealth from, have really been booming. You know, we have stock prices that are at record highs, and home prices also continue to grind higher. So these are kind of some of the factors that older or - I'm sorry - upper-income households are benefiting from more so than those at the lower end of the income spectrum.
CORNISH: What does this mean for policymakers, right? The president has talked about inflation being a priority in terms of something he's looking at. But you're telling me a tale of two economies.
RASHEED: Yeah. So policymakers have - they've found themselves in a tight spot. But ultimately, if you go back specifically on the monetary policy front, the Fed has actually seen this coming prior to the current inflation that we're - what we're seeing right now. We've seen them kind of install this different kind of perspective on inflation where they're willing to tolerate higher inflation in the short term if that means that we can see a tighter labor market given the labor market is still recovering from the initial pandemic shock.
So while there's definitely a lot of pressure on policymakers in the short term - and, you know, we've seen President Biden's approval ratings go down - ultimately, it seems that they're still in this kind of wait-and-see stance. And, you know, the main issue right now continues to be supply chain disruptions that have been a lot more persistent and stubborn than were initially expected. But there's also some early signs that some of these pressures are easing, and that's really where policymakers are focused right now.
CORNISH: Does what we see now kind of indicate that more Americans will still need more help down the line or not?
RASHEED: Yeah. I think this is a question that a lot of policymakers and economists are looking at right now. You know, we have the case where a lot of people unfortunately were kicked off these expanded unemployment benefits in September, when they expired. And yet at the same time, we're seeing an extremely hot and tight labor market where, you know, job openings are at record levels and employers, a lot of times, are scrambling to hire workers.
So like a lot of other things with the economy right now, it's one of those wait-and-see stances. And it really is going to depend on the next couple jobs reports that we get. If we see that, you know, job gains are gradually picking up again and the labor market is really recapturing some of the early momentum that it had, that will be kind of a signal to policymakers that maybe we don't need expanded unemployment insurance. Now, again, if we see that the pandemic worsens again and people, out of fear of the virus, aren't returning to the labor market at a pace that, you know, economists and policymakers would like to see, that's probably when we would have to revisit that question again.
CORNISH: That was Mahir Rasheed, an economist with Oxford Economics.
Thank you for your time.
RASHEED: Thank you.
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