Deflation Looms for Overstocked Retailers as Household Wealth Shrinks

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To the list of economic headaches plaguing consumers and retailers these days, consider an old truism: what goes up must come down.

The price of gas stings, but the auto manufacturing backlog caused by the pandemic means the car you’re fueling could (at the moment) be worth near or even more than what you paid for it. Average prices for used cars surged last year by nearly 30%.

Similarly, an affordable house in much of the US has been a unicorn. But for millions of long-term homeowners — especially the Boomers and Gen Xers — inflation has been a horn of plenty, adding more than $6 trillion in equity to owner-occupied housing, according to Federal Reserve data. That helped push the typical credit score for mortgage borrowers to a record-high in the fourth quarter of last year to 788.

Over the past two years — piled on top of federal stimulus payments — the average homeowner with a mortgage accumulated $67,000 in “tappable equity,” according to Black Knight, a mortgage market data cruncher. And tap they have.

This windfall cushion of paper wealth has emboldened consumers to keep spending in the face of rapidly rising prices for just about everything.

The most recent Commerce Department data shows that consumer outlays rose in April for the fourth month in a row.

That’s about to change. What went up is starting to come down.

Retailers caught with excess inventory — as Walmart and Target reported recently — will pay the price in heavy promotions, markdowns, and red ink. After more than a year of wrestling with problems like staffing and empty shelves...

Pricing strategy is about to take center stage.

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retail disruption  consumer spending  inflation

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