Inflation deals gut punch to US millennials

NEW YORK • Millennials have spent much of their lives enduring economic calamity.

Many were children when the dot.com bubble burst; graduated from high school in the late 2000s when the real estate market crumbled; and had to compete with a huge generation of baby boomers in an anaemic post-crisis job market before Covid-19 brought the global economy to its knees last year.

But there was one powerful phenomenon that millennials had never felt, at least as adults: rapid inflation. Those born from 1981 to 1996, along with the younger Generation Z, have been wrestling with sharp price increases for the first time since they have been old enough to notice.

The consumer price index, a primary measure of inflation, has been rising and is touching its highest level since 1991, when boomers (born from 1946 to 1964) were roughly the same age as millennials are now. The closest that inflation has come to that mark since then was in 2008, when soaring oil prices briefly pushed up the overall index.

Now, supply chain snarls, sky-high consumer demand for goods and worker shortages that are limiting production and lifting wages have pushed up the costs of furniture, cars, housing, food and other products. It is hard to see when the turmoil might end.

But the price increases have been felt unevenly. Some of the most extreme gains have come in categories where millennials are more likely to spend money than older generations, US Labour Department data shows.

Petrol prices are up nearly 50 per cent this year, and Americans in their 20s and 30s spend more of their monthly budget on petrol than other age groups, the data shows.

Younger people also tend to be renters, leaving them more exposed to rising rents than older generations, who are more likely to be home owners. They often buy used cars, meaning they have borne the brunt of used-vehicle prices that are up 26 per cent over the past year. Baby boomers are more likely to buy new cars, which have gone up in price but not as much.

And although people of all ages are being impacted by higher food prices, young adults tend to dedicate more of their money to restaurant meals.

Ms Ali Wolf, chief economist at Zonda, a housing data firm, said her millennial friends regularly talk about rising prices and goods shortages but do not seem as frightened as older generations. Part of that, she thinks, may be because they do not have memories of the last time when inflation was bad - unlike baby boomers, who were just entering the workforce during the "Great Inflation" of the 1970s and early 1980s.

Members of Generation X mostly missed the Great Inflation but came of age during a period when inflation remained higher than in the 2000s.

Many young adults have also saved money and paid down student loans during the pandemic, when they were stuck at home and, in some cases, receiving government relief checks. That may have put them in a better financial position to handle higher prices, at least for a while.

But not everyone is able to navigate the moment easily. "One friend has a big family, she's a millennial, and she said her grocery bill is impacting her ability to spend money elsewhere," said Ms Wolf.

Even within generations, rising prices do not hit everyone the same way. Young parents dedicate far more of their monthly budgets to groceries than people without children, and more than older parents, who tend to be more stable financially. Low-income families of all generations spend more on housing, petrol and other essentials than wealthier families.

The good news for younger workers is that it is not just prices that are going up; pay is rising too, especially for less-skilled workers and the very young. But for the typical worker aged between 25 and 34, price increases have been outpacing wage gains in recent months.

The rapid inflation could have big policy implications. Officials at the Federal Reserve are closely monitoring outlooks for consumer prices.

The worry is that if people begin to expect a faster pace of inflation, workers will demand higher pay to cover it - and employers will raise prices further to pay for those salary rises. That could set prices and wages on an upward spiral, making a short inflationary burst last longer.

NYTIMES