Study Finds High Interest Rates Dampen Consumer Sentiment More Than Economic Measures Capture
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Research by Summers, Bolhuis, Cramer, and Schulz found that high borrowing costs impacted consumer sentiment more than traditional economic measures captured.
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They proposed an alternative Consumer Price Index that factors in interest payments, closing over 70% of the gap between inflation measures and consumer sentiment last year.
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Schulz uncovered a similar sentiment gap in Germany, disproving claims that it only existed in the U.S.
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Schulz found larger sentiment gaps in European countries with higher interest rates, supporting the link between borrowing costs and consumer views.
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Analyzing international data strengthened the hypothesis that traditional economic measures overlooked the impact of high rates on consumers.