Inflation echoes 1970s, dollar purchasing power drops 20%, home prices soar. Consumer stress rises amid inflation resurge fears.

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In a concerning turn of events, inflation appears to be following a trajectory eerily reminiscent of the tumultuous 1970s, sparking fears among analysts about its potential impact on consumers. Contrary to some analysts’ predictions, recent trends suggest that inflation might not be as transient as initially thought.

Over the past five years, the U.S. dollar’s purchasing power has witnessed a significant drop of 20%, leaving consumers grappling with the consequences. Meanwhile, home prices have surged from $250,000 to $400,000, placing additional strain on household finances.

The economy has experienced waves of inflation, with the recent period of ease possibly serving as a precursor to a renewed surge, drawing parallels to the challenges faced during the 1970s. Analysts express concern that if another inflationary surge occurs, it could pose a substantial threat to the economy.

The dynamics of inflation, whether driven by supply shortages or excess demand, continue to shape economic conditions. The lockdowns in 2020 resulted in supply-driven inflation, while subsequent economic stimulus in 2021-2022 fueled demand-driven inflation. The consequences of these economic shifts have left consumers in a precarious position.

Household savings, which experienced a significant boost during the pandemic, have now been fully depleted. This depletion, coupled with a decline in consumer confidence, raises concerns about the potential for “Near Zero Growth,” as indicated by the Conference Board’s 110-year recession tracker.

With 22 consecutive months of decline in the index, reminiscent of the 2008 financial crisis and the stagflationary crisis of the 1970s, questions loom about the possibility of a dual crisis – a 2008-style banking crisis combined with the inflationary challenges of the 1970s.

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The reality of consumers facing a more stressful financial situation than a year ago is underscored by a recent survey, where 38% of U.S. adults expressed increased stress over their overall financial situation. As retail motor vehicle and parts inventories surpass mid-2019 peaks, underlying inflation momentum is on the rise again.

As the specter of a “hard landing” becomes more pronounced, the concern intensifies that rates may not have finished their impact, leading to further challenges for consumers already grappling with financial strain.

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