Just as the scourge of COVID-19 dissipates, Americans now confront another challenge: inflation.
On Thursday, the U.S. Bureau of Labor Statistics reported that prices increased 7.9 percent over the past 12 months — a 40-year high — and rose 0.8 percent in February alone on a seasonally-adjusted basis, after rising 0.6 percent in January.
With war raging in Ukraine, inflation is seen rising more this month and into the future, potentially depleting the consumer demand that has been strong for months. Low- and middle-income consumers are most affected by inflation, but the war is also dragging the stock market down, which would further reduce demand for goods and services, particularly by affluent individuals shopping for luxury products.
Gas, shelter and food saw the biggest price hikes last month, forcing many Americans to curtail dining out and spending on other forms of entertainment, according to the 2022 ICSC “Economic Event Sensitivity Survey.” The ICSC is a large trade organization that promotes and lobbies for all sorts of marketplaces, malls, lifestyle centers, outlet centers, multiuse complexes and other spaces where people shop, dine, work, play and gather.
Related Galleries
“While recent retail sales figures demonstrate consumer optimism, consumers are also acutely aware of the need to shift their spending with shifts in the economy,” said Tom McGee, president and chief executive officer of ICSC.
“Consumer sensitivity to food, energy and other price increases could result in many dialing back their spending in other categories,” McGee added. “Retailers will need to find ways to continue serving price-conscious consumers while expanding their offerings as pandemic-related restrictions and fears decrease.”
The ICSC survey indicates that the majority of consumers — 77 percent — let personal circumstances rather than the overall economy dictate their spending, and that those who might face economic hardship are ready to cut costs starting with dining out (64 percent) and entertainment (54 percent).
The organization indicated that its online survey of 1,007 Americans was “demographically representative” and conducted from Feb. 18 to 20, prior to the Russian invasion of Ukraine, which has compounded worldwide concerns that inflation will get worse going forward.
“While this survey was conducted before the conflict in Ukraine, we expect the conflict will increase inflationary pressures,” McGee told WWD. “We anticipate retail sales will continue their positive trajectory overall; still, greater uncertainty will impact the economy over the next few months and retailers should prepare for possible supply chain issues and other disruptions.”
Inflationary concerns are not limited to just those in a worse financial position, as 82 percent of adults in the survey reported being impacted by price hikes in groceries; 76 percent reported being impacted by higher utility costs, and 75 percent said price hikes at the gas pump impacted them.
From February 2021 to February 2022, gasoline prices rose 38 percent; shelter rose 4.7 percent; apparel rose 6.6 percent; electricity prices rose 9 percent, and food rose 7.9 percent.
From January to February, gasoline prices rose 5.4 percent; shelter costs rose 0.6 percent; food prices rose 0.9 percent; apparel prices rose 3.1 percent, while electricity dipped 0.7 percent.
Should their personal finances or perception of the economy improve, consumers surveyed by the ICSC indicated they would likely spend more on higher-quality groceries (52 percent), dining out (41 percent) and saving (40 percent).
The survey also found that a plurality of Gen Z (49 percent) and Millennials (47 percent) indicated their financial situation had improved in the past year, suggesting these groups will be critical in continuing the economic recovery of the pandemic.
Consumers identified retail prices (77 percent), energy and gasoline prices (69 percent), employment status or wages (59 percent), and personal debt (59 percent) as the factors with the greatest impact on their expenditures or spending habits.
The ICSC also reported that in its survey sample, only 35 percent of consumers cited the stock market and their 401k plans as drivers of their spending.
Also, only 37 percent of consumers cited global geopolitical issues impacting their spending, though the ICSC did note that the war in Ukraine is “likely to add to inflation and impact consumer perception.”
During the pandemic, the personal savings rate topped 27 percent and 80 percent of adults saved money during the pandemic, including 92 percent of Gen Z and 84 percent of Millennial respondents to the survey.
According to the ICSC, those who saved intend to continue saving that money, and many will use the savings to pay down debt (34 percent) or for retirement (26 percent). “Perhaps as a result of increased saving rates, a majority of consumers (63 percent) feel prepared to manage their household’s finances in the event of an economic downturn.”
“The past two years have been challenging and unprecedented for American businesses and consumers, and issues like inflation continue to weigh on consumer spending even as many Americans are financially better off than they were before the pandemic,” said McGee. “Still, we remain confident in the broad trajectory of the economy, and the marketplaces industry is poised for success in 2022 as, to date, consumer resilience has outpaced these concerns.”