As the United States experiences record levels of inflation, the prices of goods and services are continuing to climb. Consumers and retailers alike are feeling the pinch and wondering what’s next.
NRF recently hosted a members-only webinar with VP of Research Development and Industry Analysis Mark Mathews and Katherine Cullen, senior director for industry and consumer insights, to discuss what retailers need to know about inflation, including insights from NRF’s consumer research on how shoppers are reacting to higher prices.
How did we get here?
Consumers were able to save significantly during the pandemic, thanks to government stimulus packages and a decrease in spending on services. As the economy resumed to a more normal pace, consumers increased their spending on goods — and haven’t stopped: Retail sales grew a record 14.1 percent in 2021, the highest growth rate in more than 20 years and well above the pre-pandemic growth rate of 3.7 percent. To put that another way, American consumers spent $1 trillion more on retail goods in 2021 than in 2020 and are spending at an even higher rate so far in 2022.
What’s the impact on consumers?
One reason consumers have been able to maintain these levels of demand is the growth in cash and equity assets during the pandemic. According to the Federal Reserve, U.S. households had $4.2 trillion more in cash in their checking and savings accounts in the fourth quarter of 2021 than the same period in 2019.
Wage growth has also helped. For most income groups, earnings in 2021 surpassed the impact of higher prices. But that’s not the case for all consumers: Lower-income households didn’t see the same growth in savings or earnings. As a result, they’re particularly vulnerable to the impact of inflation.
What’s more, a recent NRF survey found that more than two-thirds (68%) of those earning less than $50,000 a year are having to borrow money, go into debt or take from their savings to cover everyday expenses.
How are shoppers responding?
Consumers have been through this before. They keep an eye on prices. When prices go up, consumers adjust how they shop depending on their household’s budget and needs. Lower-income shoppers are frequenting discount stores more, cutting back in other areas to afford necessities or buying less frequently to lower the number of shopping trips.
All consumers are feeling the impact of higher prices on things like groceries, cleaning supplies and household goods. But those with more of a financial cushion are more inclined to look for coupons or sales, buy in bulk or switch to cheaper alternatives.
What can we do about it?
President Biden and Congress can provide relief to consumers and encourage economic growth. Over the past several months, NRF’s “Lower Inflation Now” grassroots campaign has generated hundreds of messages to the administration and Congress. Please join NRF in calling on Congress to support policies that will lower inflation.