Stubborn Inflation Weighs on Consumer Attitudes and Spending

Call it status quo — and maybe a sense of ennui?

The latest, preliminary readings of consumer sentiment for the month of March, issued Friday (March 15) by the University of Michigan, found that things are little changed. The latest calculation came in at 76.5 for the current month, down just a bit from the 76.9 logged, as a final tally, last month.

“Consumers perceived few signals that the economy is currently improving or deteriorating,” said Surveys of Consumers Director Joanne Hsu, reflecting on the data in the customary statement that accompanies the report. “Indeed, many are withholding judgment about the trajectory of the economy, particularly in the long term, pending the results of this November’s election.”

In the look-ahead toward inflation, the data show that inflation expectations were unchanged at 3.0% in March, looking out through the next 12 months. That’s the same level recorded last month. The survey’s five-year horizon estimation of inflation was unchanged — at 2.9%, the level that’s been entrenched for the past four months.

The toll inflation is taking — especially on paycheck-to-paycheck consumers, who now account for about 60% of us here in the states — is evident in recent PYMNTS Intelligence data that found that 58% of consumers, spanning all income levels, say they are cutting back on nonessential spending. We found that nearly half of U.S. consumers earning north of $100,000 each year say they decrease nonessential spending whenever possible.

As many as 61% of consumers earning less than $50,000 annually and nearly two-thirds of those earning between $50,000 and $100,000 each year do the same. Of the paycheck-to-paycheck consumers who say that they have at least some challenges paying their bills, more than two-thirds say that they are making tradeoffs between “essential” and “nice to have” spending.

Input Prices Are Rising

There’s some evidence elsewhere in the official data that things may not get any easier. As reported earlier this week, wholesale prices, as measured by the Producer Price Index, were on the rise in February. The PPI, as it’s known in shorthand, measures the prices for raw, intermediate and finished goods … which in turn are inputs, or final items, which wind up costing merchants and enterprises money as they manufacturer or refine goods and pass them on for final sale. The latest iteration of the Index showed a 0.6% gain for February, far outstripping expectations of a 0.3% gain.

The producer price index, which measures pipeline costs for raw, intermediate and finished goods, jumped 0.6% on the month, the Bureau of Labor Statistics reported. That was higher than the 0.3% forecast.

The read across here is that if firms have to contend with higher costs to create their wares, they’ll try to offset at least some of those costs through price increases — passed along to their end markets. For the consumers themselves, in the paycheck-to-paycheck world, the price increases may be tough to swallow, and we may see further trade-downs, or a chilling effect on purchasing behaviors overall.