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Rising Inflation Overwhelms Consumer Spending Power

Rising Inflation Overwhelms Consumer Spending Power

May 9, 2024

Rising Inflation Overwhelms Consumer Spending Power

In a recent analysis of economic conditions under the Biden administration, a stark picture has emerged, highlighting a growing divide between the wealthy and the rest of the population. Major consumer brands such as McDonald's, Kraft, and Coca-Cola have reported significant shifts in consumer behavior, as inflation continues to impact the purchasing power of low-income consumers.

McDonald's has seen a decrease in same-store sales by 3% and a 7% drop in transactions, despite a 4% increase in prices, an attempt to counteract inflationary pressures. Similarly, Pepsi's sales have fallen by 5%, and Nestle has seen an 8% decline in sales for products including hot pockets, frozen pizzas, and Stouffer's frozen dinners. These trends point to a reduction in discretionary spending among consumers who are struggling to keep pace with rising costs.


Starbucks presents an even more concerning scenario, with a 14% drop in stock value following reports of lower revenue, transactions, and ticket sizes. The loss of 1.5 million loyalty reward users further underscores the challenges faced by consumers at the lower end of the economic spectrum. The CEO of Starbucks attributed these difficulties to "macro headwinds," a polite term for the financial strain inflicted on consumers by inflation and stagnant wage growth.

In contrast, the luxury market is thriving. Sales of high-end products and services have seen robust growth, with luxury ETF Lux, which includes prestigious brands such as Hennessey, Hermes, and Ferrari, increasing by 20% in the past six months. This upsurge extends to the automotive industry, where Lamborghini announced record sales, including 10,000 cars sold, a third of which were in the U.S. Bentley, Aston Martin, and Rolls Royce have also reported record numbers.

Analysts describe this economic situation as a "K-shaped" recovery, where the affluent experience growth and prosperity, while those at the bottom face increasing hardship. This divergence is mirrored in credit card spending patterns and rising delinquency rates among those who are less well-off.

The current state of affairs is attributed to the Federal Reserve's significant monetary expansion and government deficit spending since the pandemic began. These fiscal policies have disproportionately benefited the wealthy, who own assets or are connected to politically favored companies and government contractors. Conversely, the middle class and less affluent receive minimal benefits, if any.

The proposed solution to this widening gap is a dollar-first monetary policy, which could include measures such as ending the Federal Reserve and reducing the national deficit.


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