The long-term impact of inflation is becoming increasingly more evident in shoppers spending habits. Year to date for the 12-month period ending May 2024 the inflation rate was +3.3%. However, if you look at the last 3 years, inflation was +4.7% in 2021, 8% in 2022 and 4.1% in 2023. These increases have impacted every aspect of consumers’ lives. According to the Bureau of Labor Statistics reports, food inflation increased by 23.5% between February 2020 and May 2023. This alone has had a major impact on families.
These increases reduce people’s disposable income and impact purchasing power for other goods. Especially things that are a want, not a need, and are reshaping our ideas of what a luxury is. Retail growth was slow, in May only up .01%, meaning consumers spent the same as they did in April which was less than economists had expected. Consumers are struggling with inflation as higher costs continue to impact them and these increases are coming from every direction.
The rising costs to maintain the necessities; housing, food, gas, utilities, and commuting costs, as many people are being forced to return to the office, are forcing people to tighten up their spending and re-evaluate their purchases. In addition, increasingly high interest rates of 20% or more since April 2024, make credit card purchases much less desirable and customers are opting for services such as Klarna and After pay which offer a compelling alternative. All these factors impact not only the consumers disposable income but also their purchasing mindset.
Consumers are not as optimistic about what the future economy looks like and that is compounded even more by the fact that it is an election year. They are still purchasing but they are changing their shopping habits. The covid days of large home purchases and renovations have slowed as people opt more for experiences and travel. When they do purchase, they are choosier than in the past, weighing the options of need vs. want. They are much more likely to purchase out of need than want and they are also shopping in different stores. As consumers search for bargains, they are more frequently visiting stores like Walmart and Target, who continue to roll out price cuts as we head into the peak summer months. Even fast-food restaurants, which were always more affordable, are feeling the pinch as more people choose to eat at home. Even McDonalds executives have noticed the shift in spending and decided to bring back the $5.00 Value meal. This is not only to entice customers back but also hoping to offset softer sales as the fast-food industry struggles. Although Amazon continues to thrive, the retail goliath will be launching a cheaper clothing line to compete with companies like Shein and Temu, who continue to grow market share in the US with their lower prices Wand additional percent off coupons.
As we head into the next few months of the very important retail Back-to-School season, the election will be drawing closer, and we will see just how strained consumers are and how much purchasing power they have lost. Parents will still purchase for their children, but we may see a shift not only in where and what they are purchasing, but how much they are willing to spend. If back to school spending remains strong, it may negatively impact other product categories because day wage increases do not seem to be keeping pace with inflation.
