Flush with $2.5 trillion in excess savings at the beginning of last year, U.S. households let loose on the economy once the pandemic’s emergency phase ended. In March 2022, when U.S. inflation had risen to nearly 8.5% and the Federal Reserve had just announced its first interest rate hike to cool the economy, consumer spending was still 18% higher than in March 2020 and 12% higher than what pre-pandemic forecasts had predicted, according to consulting firm McKinsey.

During the pandemic, households tapped their high savings and federal stimulus checks to reinvigorate the economy, which in 2021 grew at its fastest pace in decades. But the rampant spending partly caused the high inflation today. With the spending expected to continue for some time, it could mean that inflation will stick around longer than it would otherwise. 

Part of what’s behind the expected buying boom and “sticky” inflation is demographics. Nearly 100 million Americans are at an age when they tend to spend big, according to Bill Smead, chief investment officer at investment firm Smead Capital Management.

“We have 92 million people between 22 and 42, and they’re all going to spend their money on necessities the next 10 years, whether the stock markets are good or bad,” Smead said in an interview Tuesday with CNBC.

With all the big purchases such as homes over the next decade, the economy will continue to run hot, making the Fed’s long-term goal of reducing inflation much harder to achieve, Smead said.

Young Americans’ spending

Smead’s argument is largely backed up by recent survey data. In 2021, nearly 70 million Americans were between the ages of 19 and 35, and around 150 million, or almost half the U.S. population, was between 19 and 54. These are prime spending years, according to the Bureau of Labor Statistics, as expenses for almost every category—including food, housing, clothing, and transport—increase the most between ages 25 to 54, when incomes tend to peak and people make most of their big purchases. 

Millennials and most members of Generation X are still in their spending prime, and many will continue to be over the next decade. The older members of Generation Z, who are now in their mid-twenties and relatively early on in their careers, are also expected to join the big spending club in the next few years. 

Millennials, who surpassed baby boomers as the largest age group in the U.S. in 2020, will likely make up most of the spending as they age into homebuying. The number of Americans aged 18 to 44 and responsible for the most spending is forecasted to grow by almost 5% between 2020 and 2030, according to the Census Bureau, which is good news for the economy, but not so much for reducing inflation.

“We think the inflation is going to be far stickier and longer-lasting,” Smead said, referring to high prices becoming hard to bring down past a certain level.

Sticky inflation is hard to shake off

It isn’t the first time Smead has blamed younger generations for high U.S. inflation. Last summer, when inflation was consistently breaking 40-year records, Smead said in an interview with CNBC that “too many people with too much money chasing too few goods” is what really causes inflation. The next few years of spending by young Americans, he said, was comparable to when baby boomers replaced the Silent Generation as the country’s biggest spending demographic, shortly before the inflationary crisis of the 1970s.

January’s consumer prices, a common indicator of inflation, were 6.4% higher than a year ago, the BLS said Tuesday, the seventh straight month of year-over-year declines. But January prices were also slightly higher than in December, as costs rose for some items including fuel, food, and clothing.

Stubborn inflation combined with a consistently strong job market means the economy is strong, but it may also make the Fed’s goal of reducing inflation harder. For example, Mohamed El-Erian, an economist and president of Queens’ College at the University of Cambridge, told Bloomberg last month that inflation would likely become “sticky” at 4% around mid-2023.

Whether inflation becomes sticky and for how long is still up for debate. While both Gen Z and millennials age into what have traditionally been prime spending years, they also may be less likely to spend in general.

Millennials have been the hardest-hit by inflation over the past year and, along with Gen Z, were less likely to spend than older generations during the pandemic, especially on big-ticket items including homes and cars. An example is historically low homeownership rates among thirtysomethings last year compared to baby boomers and Gen Xers when adjusted for age. Young Americans, even wealthy ones, have delayed big purchases more than previous generations, with many blaming slow wage growth, student debt, and job losses.