Inflation cushioned by bigger bank accounts: Bank of America Institute

U.S. households — particularly low-income ones — are still sitting on a healthy pandemic nest egg, cushioning them for now against steep price increases on food and energy. That means that even with consumer prices forecast to have risen 8.4% in March, shoppers shouldn’t be running out of cash.

That’s the finding of a new Consumer Checkpoint report from the Bank of America Institute, which showed debit and credit card spending rose 11% last month, or 6.7% on a per-household basis. The gap in spending between income strata is widening, however, with households making less than $50,000 a year spending 4% more in March 2022 compared with March 2021, and those making more than $125,000 a year boosting their spending by 11.8%.

“One of the comforts we take looking at our data set is that consumer deposits are running considerably higher, particularly for the low-income households, than they were pre-pandemic,” Bank of America Institute Chief economist David Tinsley told Yahoo Finance Live in an interview. “On average, the lower-income household has about $1,500 more in the savings and checking account than it did pre-pandemic.”

As Tinsley’s report found, “A measure of median household savings and checking balances for those groups with income below $50K shows these balances are around double where they were before the pandemic. Broader measures of average consumer deposits show even larger percentage increases.”

Americans are also carrying lower debt loads, as pointed out by Keith Lerner, co-chief investment officer and chief market strategist at Truist, in a recent note to investors. “Credit card balances are at a 25-year low. Similarly, the household debt service ratio is at a more than 25-year low. Thus, while there is higher inflation, most people should be able to make it through this period,” he wrote.

Inflation is still an issue. Consumer prices for all items, including food and energy, rose 7.9% in February, and economists predict that further accelerated in March. The Bureau of Labor Statistics is set to release the Consumer Price Index on Tuesday.

The Federal Reserve is aiming squarely at those price increases, giving more indications in minutes of its March meeting, published Wednesday, that it plans to raise interest rates by 0.5% in May. It also laid out the planned wind-down of its $9 trillion balance sheet.

Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9am-11am ET. Follow her on Twitter @juleshyman, and read her other stories.