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Research from Oxford Economics suggests that falling inflation over the past year has benefited the lowest-income Americans. As a result, the report suggests that low-income groups will be in a better position to contribute to consumer spending by 2024, potentially boosting the overall economy.
Yahoo Finance Josh Schafer analyzes this research and discusses trends among low-income individuals.
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor’s note: This article was written by Ike Ntekim
video transcript
Madison Mills: Which brings us back to inflation, because last year’s drop in inflation benefited the lowest income Americans. This is clear according to new research from Oxford Economics. Josh Schafer once again explains the details. And Josh, I’m really glad you brought this story to us. Because we get into a whole conversation of good news and bad news. Because we’re particularly focused on the Fed. But for those who are experiencing these price hikes, it is indeed good news.
Josh Shafer: Higher wages are good news, right? For American consumers, we want to make more money, right? And that always helps. This Oxford Economics study was very interesting to me because it shows where we are currently seeing the biggest wage increases. Here we are talking about real wage growth. Therefore, real wage growth is the wage growth we see from data from agencies like the BLS minus inflation.
So what happens after you take out the inflation that we talk about so much? And what we see in the Oxford graph is that the lowest income earners are actually earning the most in terms of wage growth right now. It means that you are getting it. That means wage growth is currently around 3%. You can see there’s a purple line there. And the blue line is the amount the highest earners are getting in wage increases. They are about 1%.
So, as you can see, they earn a little less. Low-income consumers actually benefit in that regard. But in reality, where they benefit is where they can spend their money. As a result, we know that low-income consumers spend most of their money on things like food and gasoline. Their money goes right back into the economy. Well, food and gas was one of the biggest contributors to his CPI decline in 2023. That’s why economists stress that inflation is actually the most helpful. Because inflation is where their money is spent.
And, Josh, the other interesting thing moving this issue forward is that, as I said, low-income consumers are putting most of their paychecks back into the economy. So when thinking about the consumer spending story for 2024, it’s important to ensure that low-income consumers earn more than inflation. Because low-income consumers are the ones who get the money, go to the store, and spend it. So when you’re talking about all the businesses and businesses that we’re talking about throughout the economy, these low-income people are going to the grocery store, buying groceries, going to the gas station. I want to be able to earn enough income to. , you will be able to go to different companies and buy things. And that’s what the University of Oxford is pointing out in this note as well, which is interesting as perhaps a boost to consumer spending or something that will continue into 2024.
Josh Lipton: And in this report, Josh, when they talked about lower inflation, were they talking specifically about food and energy? Also, how do you think rentals are playing?
Josh Shafer: Yeah. So I’m going to rent one of the highlights that I think we’ll see a little more of in 2024. So if you look at his CPI report for December that we got, services is one of the things that’s really supporting it and it’s also a safeguard. And the shelter inflation that we’ve seen is coming down on other measures of rent, some people don’t like the CPI measurement of rent, but ultimately what we’re seeing is is that it’s going down. Again, this is a problem because one of the main expenses for low-income people is rent. So it’s expected to decline in 2024, which is definitely something to watch from their perspective.
Josh Lipton: Okay. By the way, Josh Shafer is also here today.
Madison Mills: know.
Josh Lipton: There are two reports.
Josh Shafer: I love spending time with you guys.
Josh Lipton: Yes, I appreciate that. I love that personal touch. Yes, I really think so. Thank you, Josh Schaefer.
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