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Inflation: 'There is a bit of dichotomy' among consumer spending right now, Deutsche Bank economist says

·3 min read

With inflation in America reaching a 30-year high in October, one economist highlighted a major difference between what consumers are thinking and what they're actually doing.

"At this point, I would say that there is a bit of a dichotomy between [consumer] sentiment, which looks depressed and which is indicating a very low propensity to buy household durables, housing, and autos," Matthew Luzzetti, chief U.S. economist at Deutsche Bank, told Yahoo Finance Live (video above), and "a household that looks to be pretty confident on spending into the future."

The consumer price index increased by 6.2% in October as compared to the previous year, which was the largest 12-month increase since November 1990, the Bureau of Labor Statistics announced on Wednesday.

Leaving out food and energy prices — both considered to be more volatile — the index rose by 4.6% over the same duration and saw the biggest jump since 1991.

Meanwhile, consumers are expecting higher costs, according to a separate survey by the New York Fed. Households expect inflation in the next 12 months to rise from 5.3% in September to 5.7% in October. That's the highest rate since the survey began in 2013.

"When you look at the surveys, there's pretty clear evidence that price pressures are denting expectations, they're denting sentiment, and really, consumers are telling you it's a bad time to buy homes, it's a bad time to buy autos, it's a bad time to buy durables," Luzzetti said.

Yet, "when we look at the actual consumption patterns, it's less clear," he added, because "consumer spending expectations actually look to be pretty strong."

Consumer spending to hold strong despite higher prices: Economist

Even as supply-side constraints such as congestion at ports and a general shortage of goods leads companies to hike prices, spending has been "pretty decent," Luzzetti said.

Some of the main factors pushing prices up are the many containers stranded at sea and the trucking routes that continue to be clogged as consumer demand increases.

"You've got the proverbial softball through the snake right now," Generac CEO Aaron Jagdfeld said previously on Yahoo Finance Live. "Christmas season demand, in particular, is exacerbating the problem. ... all signs kind of point to maybe by the second half of next year that some of these tougher supply chain challenges abate."

Gas prices grow along with inflation as this sign at a gas station shows in Solana Beach, California, U.S. November, 9, 2021.  REUTERS/Mike Blake
Gas prices grow along with inflation as this sign at a gas station shows in Solana Beach, California, U.S. November, 9, 2021. REUTERS/Mike Blake

An Oxford Economics survey of 148 businesses found that only one in five businesses affected by the supply chain disruptions believe that the worst of the crisis is over.

About 56% of businesses affected by the supply chain crisis expect disruptions to continue, and 64% said they expect this crisis to end after mid-2022.

However, none of this is going to dampen consumer spending, Luzzetti stressed.

"We do think from a growth perspective, as you get into 2022, you [will] continue to see strong consumer spending growth even though sentiment has been dented," he said.

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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