U.S. consumers are facing a 40-year high in the nation’s consumer price index right now, and that’s having an impact on household spending priorities.
To a point, that is.
According to a new survey from HomeServe, 82% of respondents said inflation is impacting their household budgets with higher prices on groceries, gas, and utilities most impacting wallets.
The purchases respondents are most putting off are home furniture and household items (52%), vacation (47%), and a new or used car (37%).
However, there are certain creature comforts that Americans won’t give up, inflation or not. According to the HomeServe report, the spending habits they refuse to give up include dining out (topping the list at 49%) and Streaming TV (47%). Vacations make this list as well, with 45% of respondents saying they won't give up on them.
The household consumer items Americans are most willing to give up, for now, are regular pet grooming (16%) followed by club/golf/pool membership (18%).
It’s also worth noting the household item consumers believe needs to prioritize is HVAC emergencies, which topped Home Serve’s list.
“Overall, 28% of respondents saying this important home system needed to be repaired or replaced over the past 12 months,” the study said.
That figure may be taken with a grain of salt, as Home Serve specializes in home HVAC repair.
Creature Comfort or Budget Killers?
In times of economic pain, one consumer’s creature comfort is another consumer’s budget buster. Who’s right in that scenario?
One financial expert sides with the budget buster – at least on the spending side.
“Dining out, for example, is often a budget killer,” said Jay Zigmont, founder of Childfree Wealth, in Water Valley, Miss. “I'm not surprised at all that people do not want to give up on it. Dining out, ordering in, and delivery services provide comfort that goes far beyond food.”
For Zigmont and his wife, dining out is normally the largest discretionary spending item on their household budget. “We can cook, and we do, but there is something nice about having someone else make food for you,” he said.
A big part of that mindset is that with the CPI at a high last seen 40 years ago, there are generations of Americans who’ve never dealt with sharply rising consumer prices.
Consequently, one of the big challenges for many people right now is they don’t have experience in a high-inflation economy.
“We haven't seen inflation like this in decades, so even those who did live through high inflation may have fuzzy memories,” Zigmont told TheStreet.com. “People who grew up in the depression era always had a rainy-day fund. They knew the impact of depression on their finances.”
But for the last decade or more, Americans were in an environment of low inflation and low-interest rates.
“It’s going to take time for people to adjust to this new economy,” he said.
In For the Long Haul?
One of the trends that economic experts areseeing is that both consumers and companies really haven't seen the slowdown that so many expected after a historic 75-basis point hike from the Federal Reserve.
“It’s yet to affect employment in a macro sense, given the recent job numbers,” said Charles Catania, principal at Branding with Chuck in New York, N.Y. “Until we see the Federal Reserve’s movements affect the overall economy in significant ways, we're going to continue to see inflation gnawing around the edges of family budgets.”
That gradual realization may change a consumer’s “creature comfort” going forward.
“Practically, instead of a hard stop in terms of going out to eat, we're seeing people scale back, opting for brands that are more affordable,” Catania told TheStreet.com. “That brand replacement strategy will likely be pervasive as families try to make ends meet.”
Even so, times are hard, and consumers aren't ready to throw out the playbook yet.
“Right now, Americans are focused on making small changes that make significant differences in their budget,” Catania noted. “That means that value brands are enjoying a renaissance, and it coincides with what we're seeing from the creature comforts survey results.”
“Watch for those numbers to change as inflation, and Fed's response to it, further impacts the overall economy,” he added.
