American households plan to sharply increase spending in 2022 thanks to rising incomes and an improving economy, but higher prices tied to rapid inflation is also a big factor.
The New York Federal Reserve said a survey of consumers show that median household spending is expected to increase 4.6% this year. That would be the biggest advance since the bank first began its monthly survey in 2015.
Households plan to spend more on food, clothing, housing, utilities and transportation, all of which are expenses that are sensitive to inflation.
Consumers with college degrees expected to record the biggest increase in spending. Other surveys show that middle and lower-income Americans who are hurt more high inflation plan to be more cautious.
Households also increased spending rapidly toward the end of 2021, the Fed survey showed. Median spending in the 12 months ended in December climbed to 5.1% and hit the highest level since the Fed began tracking the data in 2014.
Part of the spike in spending stemmed from inflation. Consumer prices jumped 7% in 2021 to mark the biggest gain since 1982.
Incomes also rose sharply in 2021 and wages are rising at the fastest pace in decades.
Asked what they were doing with the unexpected windfall in income, 49% said the money would be saved or invested. An additional 31% said the money would be used to pay down debt.
High inflation is altering spending plans, too.
The share of households that made a major purchase in December such as a car, house, appliance or vacation all declined.
Consumers also plan to rein in these purchases in the first four months of 2022, a sign they are aiming to wait out the price increases and see if easing shortages bring costs down.