Rising inflation dampens Americans’ personal financial satisfaction

Though many factors point to continuing economic recovery after the 2008 recession, rising interest rates are weighing on Americans, according to first-quarter results of the Personal Financial Satisfaction Index (PFSi), which showed a 1.6-point decline from the previous quarter.

The PFSi is calculated as the difference between two component subindexes, the Personal Financial Pleasure Index and the Personal Financial Pain Index. The Personal Financial Pain Index rose by 3.2 points in the first quarter, due, in part, to rising inflation.

The blended inflation measure used in the index was 2.1% for the first quarter of 2017, up from 1.3% in the previous quarter. The measure was 0.9% in the first quarter of last year. The inflation factor in the index is composed of a blend of 95% annual change in the personal consumption expenditures index and 5% annual change in the consumer price index for fuel oil and other fuels, as published by the Bureau of Labor Statistics.

Mark Astrinos, CPA/PFS, a member of the AICPA Personal Financial Specialist (PFS) Credential Committee, said in a press release that, despite increases in inflation, it’s important to consider the big picture.

“Inflation is still in line with the Federal Reserve’s goal of around 2%, but the situation is definitely worth monitoring,” Astrinos said. Although rising interest rates have caused concern for some investors, there is a “silver lining”: “Higher rates will result in increased opportunities for higher interest-based income going forward,” he said.

Of the other three factors that make up the Pain Index, loan delinquencies fell by 2.1 points, while personal taxes increased by 1.5 points and underemployment held steady.

Overall, the PFSi remains positive at 17.5 points, an indication that Americans’ personal financial satisfaction is still high.

All four of the factors that make up the Personal Financial Pleasure Index improved this quarter. The PFS 750 Market Index, a proprietary stock index, rose 2.9 points to reach its all-time high, while the CPA Outlook Index, a measure of CPA executives’ sentiment toward the economy, increased by 1.9 points. The 750 Market Index is 7.1 points higher than it was in the first quarter of 2016, while the CPA Outlook Index is 12 points higher.

“The recent stock market rally has put an exclamation point on the post-recession bull market, with investors seeing significant gains both quarter over quarter and year over year,” Leonard Wright, CPA/PFS, a member of the AICPA PFS Credential Committee said in a press release. “With stocks at or near historic highs, it’s a great opportunity for Americans to take a look at their asset mix and consider rebalancing their portfolio and locking in recent gains.”

Home equity and job openings, the two other factors that make up the Pleasure Index, increased by 1.3 points and 0.6 points, respectively.

The values measured in the PFSi appear to be on track with Americans’ responses when asked to reflect on their level of satisfaction with their personal finances. According to a Harris Poll conducted on behalf of the AICPA in March 2017, 64% of the 1,018 Americans surveyed said they were satisfied with their personal finances. The same phone survey indicated 41% of Americans felt improvement in their personal financial satisfaction over the past year while 17% felt their personal financial satisfaction had declined.

Additional information on the PFSi can be found at aicpa.org/PFSi.

—Samiha Khanna is a freelance writer based in Durham, N.C. To comment on this article, email editorial director Ken Tysiac.