El-Erian Reportedly Says Affordability Debate Ignores A Key Factor – Rising Income Anxiety

• El-Erian said that focusing on inflation makes for a “compelling battle cry” for politicians.
• He explained that income anxiety is also driven by the impact of artificial intelligence on the workforce, as well as the increase in layoffs.
• The economist added that the income side of the affordability equation must also be addressed, alongside inflation.

Mohamed El-Erian, Chief Economic Advisor at Allianz, on Wednesday reportedly said that while the focus on the affordability squeeze because of inflation is “understandable,” it ignores a critical component of the phenomenon.

In an opinion piece for The Financial Times, El-Erian stated that the recent U.S. elections brought to the fore the anxiety among Americans about inflation, highlighting that affordability is one of the primary concerns. However, he added that focusing only on inflation is not sufficient.

“The focus on prices is understandable. The inflationary surge of 2021-22 was a major shock that made the cost of staples, such as groceries and utilities, a source of pain,” he said.

Compelling Battle Cry

El-Erian added that focusing on inflation makes for a “compelling battle cry” for politicians. However, many voters were frustrated that there was a disconnect between news of inflation coming down and the fact that it was the rate of inflation that had slowed, not the prices of goods and services.

“It is income that is now under greater pressure, exposing the fragile financial foundation of too many households,” the economist added.

Last week, Federal Reserve Bank of Chicago President Austan Goolsbee expressed concerns about core services inflation edging up, stating that this is a more persistent form of inflation. Service prices, excluding energy services, rose 3.5% for the year through September, according to the Consumer Price Index (CPI) report from the Bureau of Labor Statistics.

Overall, the annual inflation rate stood at 3% in September.

Income Anxiety

El-Erian explained that income anxiety is also driven by the impact of artificial intelligence on the workforce, as well as the increase in layoffs. 

According to data from Challenger, Gray & Christmas, U.S.-based employers trimmed more than 153,000 jobs in October on account of artificial intelligence and cost-cutting.

El-Erian added that the income side of the affordability equation will also need to be addressed, alongside inflation. “Until this happens, affordability will be even more of a central issue. Failure to tackle it would risk economic instability, social fracture and political polarisation while constraining AI’s potential to lift productivity and growth,” he said.

Meanwhile, U.S. equities gained in Wednesday’s pre-market trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.35%, the Invesco QQQ Trust ETF (QQQ) gained 0.62%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 0.23%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bullish’ territory.

Also See: Gary Black Says This Is The Next Major Catalyst For TSLA Stock

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