Concerns about inflation peak as Americans struggle to shake off a ‘vibecession’

Even as fears of recession subsided, new economic worries took their place.

Concerns about inflation and interest rates are now at a two-year high, according to a recent report by credit reporting agency TransUnion.

Although Americans have seen their buying power rise amid cooling inflationary data and a strong job market, 84% of all adults still rank inflation among their top concerns, followed by housing prices and interest rates, TransUnion’s consumer pulse study found.

“There continues to be positive progress against bringing down inflation,” said Charlie Wise, senior vice president and head of global research and consulting at TransUnion. However, “consumers continue to feel worse about it.”

At the same time, more than half, or 55%, of Americans are optimistic about their household finances over the next year, TransUnion’s report found. That upbeat feeling is driven, in part, by confidence in the labor market and continued wage increases.

But while consumer sentiment has been improving, workers remain at least somewhat sour on the state of the economy. The disconnect between the economy’s overall strength and its perceived weakness among households is characterized by the term “vibecession.”

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To be sure, prices are still rising. They’re just growing at a slower pace than they had been.

The consumer price index, a key inflation measure that tracks average prices across a broad basket of consumer goods and services, increased 3.3% in May relative to a year earlier, according to the Bureau of Labor Statistics. That’s down from a pandemic-era peak of 9.1% in June 2022.

“We are seeing now a price level that is much higher than two or three years ago and that feels bad,” Wise said.

“From filling up a tank of gas to making a rental payment to buying groceries, most consumers are paying more today for everyday expenses than they ever have,” he added. “And if they’re using a credit card to make these purchases, their interest rates are at much higher levels, so costs also are rising for those consumers carrying a balance.”

TransUnion’s report found a widening gap between those who say their household incomes are keeping up with inflation versus those who say their incomes are not.

“If you’re a homeowner or if you own financial assets, you’ve done very well, but you’re leaving out huge segments of the population,” Joyce Chang, JPMorgan’s chair of global research, said at the CNBC Financial Advisor Summit last month.

“The wealth creation was concentrated amongst homeowners and upper-income brackets, but you probably have about one-third of the population that’s been left out of that — that’s why there’s such a disconnect,” Chang said of the last few years.

What’s more, the Federal Reserve’s string of 11 rate hikes since 2022, coupled with higher inflation, have hit working-class Americans particularly hard. 

Many of these households have exhausted their savings and are now increasingly leaning on credit cards to make ends meet.

But credit cards are one of the most expensive ways to borrow money. The average credit card charges almost 21%, a near-record, according to Bankrate.

For now, those rates are likely to stay where they are, which also means there may not be much help on the way for those struggling with a vibecession.

“Interest rates aren’t likely to come down soon enough, or fast enough, to provide meaningful relief to borrowers,” said Greg McBride, chief financial analyst at Bankrate.com.

“Utilize zero-percent credit card balance transfer offers, shop around for lower fixed-rate personal loans and home equity loans, and channel as much income as possible toward paying down this debt as quickly as possible,” McBride advised.