We are doubtful that the recent strength of consumption is because real incomes are being understated, as some have suggested. It is more likely that so-called “excess savings” were previously underestimated, but even the latest estimates imply those savings are almost exhausted. If that is the case, then consumption will be increasingly dependent on income growth. Income growth already seems to be slowing and we forecast that it will weaken in the coming months, causing consumption growth to slow.
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