The high saving rate during the pandemic caused inflation to rise, creating concerns for the economy. Households accumulated excess savings during the lockdowns and economic recession, leading to a spike in the personal saving rate. This increase in saving lasted for an extended period, fueled by factors such as fear of a downturn, reduced spending due to lockdowns, government stimulus checks, and relief programs.
As households started spending their excess savings, inflation increased, exacerbated by supply chain disruptions. The Federal Reserve initially underestimated the impact of this spending, expecting inflation to be transitory. While some believe that excess savings have been depleted, others argue that the baseline for normal savings may be too high, indicating that there could still be excess savings available for spending.
Analysts point out that the current saving rate is high compared to pre-Trump years, suggesting that excess saving could support consumer spending for an extended period. In times of high inflation, people tend to avoid accumulating savings, which could further extend the period of excess saving. Despite some believing that the era of excess saving is over, there are still concerns that it may continue to impact the economy in the future.
