Consumers pay higher prices amid inflation problems
Executives from each of these companies mentioned relevant notes on recent earnings calls or reports, pointing to an emerging trend: Some consumers are putting pressure on inflation.
Despite more than two years of higher-than-normal inflation, consumers are still resilient. Retail sales have declined in recent months but remain well above the same period last year; While Conference Board data showed that consumer confidence rose in April.
However, consumers are beginning to balk at some higher prices as pandemic-era habits change, and some buyers fear an economic slowdown, analysts told ABC News. Consumers are putting off buying the big tickets, they said, though analysts differ on buyers’ willingness to put up with higher food prices.
They added that consumer opposition may continue if price hikes remain high, noting that the health status of American households will continue to increase spending in the near term.
“Consumers in general are starting to slow spending and are getting a little bit price sensitive,” Randy Connick, a retail analyst at financial services firm Jefferies, told ABC News.
“Inflation will continue to pressure consumers’ wallets,” he added.
Consumer prices rose 5% last month from a year ago, extending a month-long slowdown in price increases but leaving inflation more than double the 2% target.
However, the price hike of some consumer staples is much higher than the overall rate. The cost of flour has jumped more than 17% over the past year; Government data showed that the price of cookies rose by more than 16%.
In all, food prices rose 8.5% over the past year, a pace more than 50% faster than the overall rate.
The price increases have stalled despite the Federal Reserve’s aggressive set of interest rate increases aimed at lowering prices by slowing the economy.
Connick, of Jefferies, said the combination of inflation and high interest rates has put pressure on consumers, who bear the brunt of higher prices but face steep borrowing costs if they want to take out a loan to ease financial pain.
Connick added that resistance to higher prices was particularly evident in two groups of commodities: store-bought foodstuffs and high-priced purchases such as cars and boats.
The two groups of products make for “price-sensitive,” he said, adding that the frustration stemmed from repeatedly encountered grocery prices on one end of the spectrum and one-time sticker shock for large purchases on the other.
Simeon Siegel, retail analyst at BMO Financial Group, echoed the notes about consumer intolerance focused on expensive and durable goods, tracing the current reluctance to buy items like bicycles and sofas in the pandemic era.
“During the pandemic, everyone overbought,” he said. “The question is: what did they overbought?”
“Pilotones and patio furniture are expensive items,” he added. “They don’t need to be renewed.”
However, consumers have been forced to put up with higher prices for repeat purchases, and have been willing to do so, Siegel added.
He said, “Whoever bought a carton of milk and consumed it, went to buy it several times.”
Siegel said consumers will be spending on expensive necessities for the foreseeable future. “People spend on things they need,” he added.
However, Connick said he expects a continued slowdown in consumer spending on higher-priced goods, large and small.
“We will not see a consumer collapse,” he said. “But because inflation will remain more or less constant and interest rates are not going to come down anytime soon, we will see a slow erosion.”