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National  + Weekender  | 
SRS NNLG Reports 2022 Second Half Will See a Flight to Safety

Inflation: Bad as All That?

Open up a finance publication or scour the internet for finance news, and the one word that keeps popping up is “inflation.” It’s a scary word for many, especially those over the age of 50, because it brings back memories of the Great Inflation from the mid-to-late 1970s. The combination of oil shocks, wage-price controls and even psychology (to an extent), inflation stood at 12% in 1974. By the end of the decade, it hit 14.5%.

Though the Federal Reserve consistently likes to see a 2% inflation rate, the 7.9% inflation rate reported for February 2022 is causing concern and jitters. But a recent report issued by Cushman & Wakefield economists James Bohnaker and Rebecca Rockey suggests that this isn’t the 1970s. Yes, inflation increases need to be monitored. But as of now, consumers are spending, even as prices are increasing.

For one thing, 2021 holiday retail sales were the strongest on record, with retail sales increasing even more in January 2022. “Even more compelling is that spending was strong in discretionary retail categories such as department stores, apparel, furniture and electronics,” Bohnaker and Rockey wrote. “This would not be the case if consumers were overwhelmingly concerned about inflation eroding their finances over the longer term.

In fact, positive drivers are in play to support spending, including rising incomes and wages, more savings, higher asset prices and availability of  credit meaning “households have enough confidence and wherewithal to maintain an above-trend level of spending for the next couple of years,” the Cushman economists pointed out. In a positive nod to commercial real estate, an active consumer spending environment will likely lead to higher retail leasing levels.

Finally, unlike the oil-shock-driven inflation of the 1970s, the current inflation foundation is tied to pandemic-driven disruptions, in which demand for goods has far outstripped the supply available. There is the possibility that the Federal Reserve’s increase in the federal fund interest rates, will help normalize spending, especially on durable goods. Pent-up demand for travel, entertainment and social consumption will also be satisfied.

This doesn’t mean that inflation should be ignored, though. Bohnaker and Rockey acknowledge that Russia’s invasion of Ukraine will likely keep prices high. Nor do they suggest that consumer spending or demand for goods and services will suddenly dwindle. And, if inflation does continue high for a prolonged period, it could deter spending on mid-priced apparel brands and at department stores and fine-dining restaurants. “That said, we have yet to see material evidence of this, and the opposing force of pent-up demand may be strong enough to outweigh price concerns,” the Cushman economists said. “Consumers are eager to get back into the shops and restaurants that were off limits for so long.”

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Inside The Story

James Bohnaker, Cushman & WakefieldRebecca Rockey, Cushman & Wakefield

About Amy Wolff Sorter

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