Analysts Say Oil Shock May Not Bother U.S. As Economy Swims In Cash
The gusher of money the US government poured into family bank accounts during the coronavirus pandemic, credited with speeding the rebound from the health crisis, may now help limit the economic damage from Russia's invasion of Ukraine and give the Federal Reserve more leeway in raising interest rates, Howard Schneider reported for Reuters.
Photo Insert: Households "have accumulated about $2.6 trillion of 'excess saving' in recent years relative to the pre-pandemic trend
As analysts have begun parsing what sky-high oil prices and new uncertainty might mean, a common theme has emerged: US consumers may get gouged at the gas pump but will likely be able to maintain much of their expected spending on other goods and services due to savings accumulated out of COVID-19 pandemic spending programs that have totaled about $5 trillion.
The war in Ukraine is a shock, they note, but one the US may have unintentionally insured itself against.
"Household savings could help consumers maintain spending volumes in the face of related price increases," JPMorgan economist Daniel Silver wrote this week, noting that each 10% increase in oil prices would cost consumers an additional $23 billion each year.
Households "have accumulated about $2.6 trillion of 'excess saving' in recent years relative to the pre-pandemic trend, which all else equal could be enough to cover even a sustained 50% surge in oil and natural gas prices for many years to come," Silver wrote.
US consumer price data released on Thursday showed the pace of annual price increases jumped to 7.9% last month from 7.5% in January. The increase was driven by energy and food costs but still did not reflect the brunt of commodity price increases seen in the two weeks since Russia invaded Ukraine.
The month-to-month pace of price increases among some key goods declined, a development Fed officials have been hoping for as they look for signs that overall inflation would begin to moderate.