Ever wonder why your wallet feels lighter even when your income goes up? New data shows consumers are pulling back on spending despite rising disposable income, all thanks to inflation! It’s a tricky balancing act between saving and spending. Are you feeling the squeeze, too?

Recent economic data reveals a complex landscape for consumers, who are strategically decelerating their real spending despite an uptick in disposable income, primarily driven by persistent inflationary pressures and a growing imperative to conserve cash.

While nominal spending continues to outpace the rise in personal incomes, a closer examination, particularly when adjusting for inflation, indicates a noticeable paring back of actual expenditures. This shift reflects a cautious consumer sentiment, where households are actively managing their finances in response to an uncertain economic outlook and the continuous erosion of purchasing power.

According to the latest estimates from the U.S. Bureau of Economic Analysis, personal incomes experienced a 0.4% increase on a seasonally adjusted monthly rate in July, a slight acceleration from the 0.3% gain observed in June. Crucially, disposable personal income, the money households have left after taxes and other deductions, also saw a positive trajectory, providing consumers with more funds at their disposal.

However, this growth in income was met with a more robust expansion in personal consumption expenditures (PCE), which rose by 0.5% in July. This increase was broadly distributed, with services contributing a significant $60.2 billion and goods adding $48.7 billion. Notably, expenditures on goods, especially durables, showed accelerated growth, climbing by 0.8% in July, compared to a 0.4% rise in the preceding month.

Inflation remains a pivotal factor shaping these trends. The PCE price index, the Federal Reserve’s preferred gauge for inflation, increased by 0.2% in July, maintaining a 2.6% year-over-year rate, consistent with June’s figures. Core PCE, which strips out volatile food and energy costs, saw a 0.3% rise in July and a 2.9% increase from the previous year, slightly surpassing June’s 2.8% pace.

When viewed in real terms, after accounting for the impact of higher prices, the overarching trend in recent months points towards a deceleration of expenditures. This slowing pace of real spending is gradually aligning with the rate of income increases, narrowing the historical gap between the two metrics and signaling that households are indeed taking proactive steps to bolster their savings.

The personal saving rate, measured as personal saving as a percentage of disposable personal income, stood firm at 4.4% in July, matching June’s level. This stability is noteworthy, positioning the rate below its April peak of 5% but comfortably above December’s 3.5% low, suggesting a continued, albeit fluctuating, emphasis on financial prudence among consumers.

This drive to save occurs amidst a backdrop of rising inflation expectations, as consumer sentiment surveys indicate a noticeable uptick in anticipated price increases for the first time in several months. Concerns among consumers have intensified, particularly regarding the escalating costs of everyday necessities such as food and groceries, further influencing their spending and saving decisions.