US Savings Rate Plummets to Record Low as Inflation Levels Remain High

US dollar banknotes are displayed in this illustration taken, February 14, 2022. As inflation rises, disposable income reduces along with savings. Reuters/Dado Ruvic//File Photo

The personal savings rate of Americans has dipped to the lowest level in 14 years as sky-high inflation takes a big chunk of people’s budgets.

The U.S. personal saving rate, as a percentage of disposable income, fell to 4.4 percent in April, down from 5 percent in March, the lowest since 2008. The savings rate for February was 5.9 percent and for January 6 percent.

In April 2021, the savings rate was 12.6 percent. The highest savings rate was in March last year when it hit 26.6 percent, data from the Bureau of Economic Analysis shows.

According to Mitch Roschelle, founding partner of Macro Trends Advisors LLC, there will be demand destruction during periods of high inflation as prices get so high that people just stop consuming the items they cannot afford.

“While we haven’t truly seen demand destruction yet, the first thing that happens is people start dipping into savings because they’re not willing to slow down consumption,” Roselle said to Fox Business.

The annual inflation rate in April came in at 8.3 percent, only 0.2 percentage points lower than the four-decade high of 8.5 percent registered in March. Shelter costs, which account for a third of the inflation measure, rose by 5.1 percent, the fastest increase since May 1991. Energy prices surged by 30.3 percent while food prices rose by 9.4 percent.

Amid rising inflation, wages have also gone up. However, as wage growth has been slower than the increase in inflation, real wages have actually fallen, which would explain why people dig into savings to maintain their current lifestyles.

The average American worker made 5.5 percent more in April 2022 compared to April 2021. But given that April 2022 inflation was 8.3 percent, wages actually declined by 2.8 percent.

To make matters worse, inflation is showing no signs of easing. “On the food side, we’re seeing double-digit inflation, and I’m concerned that that inflation may continue to increase,” Walmart CEO Doug McMillon said during the company’s recent quarterly earnings call, according to Fox Business.

The decline in American savings is also highlighted in Northwestern Mutual’s 2022 Planning & Progress Study. While in 2021, the average amount of personal savings among Americans was $73,000, it fell by $9,000 to $62,000 in 2022.

“There could be several factors contributing to the drop in savings from last year ranging from spiking inflation to people spending more as they resume some sense of normalcy in their lives,” Christian Mitchell, executive vice president & chief customer officer at Northwestern Mutual, said in a May 18 press release.

“But it bears watching because while people say they plan to continue saving at an elevated rate going forward, intentions don’t always follow through to action.”