Consumer Sentiment Sours as Inflation Looks Set for the Long Haul

Grocery Spending

The University of Michigan’s consumer sentiment survey has notched its lowest level since the end of last year.

The latest reading came in at 57.7, which was 9% lower than April’s showing “amid renewed concerns about the trajectory of the economy, erasing over half of the gains achieved after the all-time historic low from last June,” Surveys of Consumers Director Joanne Hsu said in a statement.

“Year-ahead expectations for the economy plummeted 23% from last month,” she added. “Long-run expectations slid by 16% as well, indicating that consumers are worried that any economic downturn will not be brief.”

There were some puts and takes among the data, especially when it comes to inflation.

The individuals surveyed said they think inflation one year hence would be 4.5%. In April, the one-year horizon was 4.6%.

But looking out over the longer term, consumers think inflation five years from now will be 3.2%, up from 3% last month.

Inflation Will Be Entrenched for Years

The findings dovetail with PYMNTS research in the report “Consumer Inflation Sentiment: The False Appeal of Deal-Chasing Consumers,” which showed consumers are girding for inflation to last for quite a while. Seventy percent of grocery shoppers and 67% of retail customers expect significant price increases in the next 12 months.

The average consumer does not expect inflation to return to normal until the end of 2024. A normal rate would be at about 2%, which is in range of the Federal Reserve’s traditional long-term target.

The pressures are already in the mix for merchants, as nearly half of grocery and retail shoppers would leave their favorite brand for a less expensive competitor. Roughly half of consumers surveyed by PYMNTS said they are price conscious, 46% of retail shoppers stated they chase deals, and 74% of households have already been cutting down on retail transactions they deem non-essential.

Consumers are doing what they can to combat the ravages of inflation. There are several concrete steps they are taking, including reducing the quantity and/or quality of what they buy. They are also changing merchants. Eighty percent of consumers made a move of some sort to offset inflation. Nearly 15% combined all the actions, moving to reduce the volume of what they bought, the quality of what they bought, and where they bought it.

Retail products were hit even worse, with 85% of shoppers making a move of some sort and over 22% scoring the “trifecta” of fewer goods, trading down and switching merchants.