Where inflation hurts the most

It seemed as if the Federal Reserve was winning the fight against inflation with its historic and rapid set of interest rate hikes. Then this week happened—and it became obvious there are severe disparities in how people are faring through the tumult.

It’s not that all progress has stopped, but the economic data finally hinted at the long-awaited weakness in consumer spending. Retail sales dropped more than expected in January, and the inflation rate rose faster than economists had forecast. A 30-year mortgage in the US also rose to its highest level in two months, and that was before bond yields went on a ride.

All this to say: Interest rates may remain high for a bit longer. And inflation could stay sticky, too.

The Fed always said it was going to be a bumpy road. Bloomberg Television spoke to a range of people this week about different types of consumers and how the economic conditions affect them.

Jeff Zalaznick, the co-founder of Major Food Group , which owns brands such as Carbone and ZZ’s Club, said people are spending and celebrating their life events “at a level that we’ve never seen before.”

Acknowledging that the luxury market is different from the consumers who are hurting, he told us in an interview this week: “I wish that I could say that these things were a problem, but they’re not.” The restaurants in Zalaznick’s portfolio regularly serve meals running $200 a person, while membership at ZZ’s Club starts with a $10,000 fee.

People may also be willing to spend money on a sandwich at Parm, the group’s more casual Italian dining spot, but “the middle is where things are really getting hurt,” Zalaznick said. “Everything in our kind of luxury portfolio is only going up. The middle is where there’s a lot of issues in the restaurant business. It’s a difficult time for that sector, and because of what you’re seeing today.”

Jeff Jones, the chief executive officer of H&R Block Inc., said his company’s annual study Outlook on American Life attempts to see how people are faring. Among tax filers it considers to be middle Americans, with incomes between $45,000 to $145,000, it found the majority are making less than $80,000 a year. “Wallets are strained,” Jones told us on Bloomberg Television.

H&R Block offered a short-term lending product during the December holidays that saw volumes jump by 25%, Jones said. He also said he’s seeing more and more millennials seek a second job or a side hustle. “Inflation may be down, but in many categories it’s still very high,” he said. “Wages may be up, but it’s not keeping pace for the demands that people have.”

Bloomberg Invest

As the host of this year’s Bloomberg Invest conference, I couldn’t be more pleased to work alongside our esteemed advisory board members:

• Kim Lew, President & CEO, Columbia Investment Management Company
• Saira Malik, Chief Investment Officer, Nuveen, a TIAA company
• Dina Powell McCormick, Vice Chairman, President & Global Head of Client Services, BDT & MSD Partners
• Ray McGuire, President, Lazard
• Paul J. Taubman, Founder, Chairman & CEO, PJT Partners
• Boaz Weinstein, Founder & Chief Investment Officer, Saba Capital Management
• John Zito, Partner & Deputy Chief Investment Officer Credit, Apollo

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