🛍Why Record-High Inflation Isn’t Stopping These Shoppers!

Consumers are worried about the economy. And I don’t blame them. Economic growth is wobbly. Then there’s the labour shortages. And to be honest, much is uncertain. From this new Omicron variant to inflation which, by the way, hit its highest level in a decade bringing with it some really nasty price hikes. 6.8% worth of price rises in the US and 5% in the UK. And the numbers keep on rising. Come back next month and we could see something way worse!

But some still believe this is all still transitory aka not here to stay. Though this camp of folk of slowly shrinking. Even the Fed is starting to realise that it can no longer use the word ‘transitory’ in its speeches. But honestly, no one really knows what’s going to happen. No one knows what the next year will bring let alone next month. What’s certain is uncertainty itself. But this one central bank (the Bank of England) is taking no chances. Read here why they took the plunge on raising rates – ahead of the Fed.

And when you put this altogether you get one nasty mix of consumer confidence. Or a lack of it. Hey, guess what? That didn’t stop shoppers from splashing out. And I mean really splashing out. If this sort of inflation (and overall uncertainty) won’t stop them, then honestly nothing else will! 

How we feel 

Consumer confidence is essentially a barometer of how the average person feels about the overall economy. When consumer confidence is high, they’ll feel more confident (and happier). All this means they’ll be looser with their purse strings. They’re too merry to worry (or need to) about the economy’s future. ‘Cause all’s swell right now. Unemployment is falling; wealth is rising. And this is great for the economy, by the way. Since consumer spending is the air it breathes.

But when the opposite happens, things no longer look quite so rosy. When their confidence dips, they usually slow down their spending. After all, if the economy doesn’t look to be in a great place who knows what could follow. Best be safe and keep your cash close. 

But what we’ve got is something really strange. Consumer confidence crashed to its lowest level in a decade. Meanwhile, inflation in the US hit a 10-year high. And you’d think that all this would translate into lower levels of consumer spending. If things are looking so bleak, and consumers think (and know) it’s looking bleak, wouldn’t the normal response be to spend less? To rein in credit and hold off spending? For now at least? 

Yet that’s not what’s going on here! US consumers are splashing out. Like there’s no tomorrow. And if they think there’s a tomorrow, they certainly think there’s a rosy tomorrow. Consumer spending on both debit and credit cards rose by 20% last month. This is double the average of 10% in 2019. Before Covid hit us all.

Social side 

If this has shown us anything it’s that economic models can’t quite predict the human emotion. Trends are diverging (thanks to Covid) which is making it harder and harder for economists to predict how, exactly, consumers will react. What used to stand no longer does. And what never used to stand, probably does now. The rule book has been teared apart. And re-written. 

New normal?

It’s been one heck of a year. Our realities turned topsy-turvy. For months on end we couldn’t properly see our family and friends. Not without 6 feet (at least) between us. We couldn’t hang out at our normal places. We couldn’t visit restaurants, go to the movies or pretty much anything that was outside our home. Oh, apart from our local supermarket! That was about as good as it got. 

And all this not going out plus WFH meant heaps of savings. No tubes, no coffees, no bought lunches, no haircuts, no nail salons. It all adds up. Now, consumers are sitting on some lovely cash and from the data, it looks like they’re out spending it! They don’t want to be constrained. They’re free and they want to be feeling this freedom. Properly.

All those months of no-spending have appeared to go outa the window. Shoppers are back at the (physical and virtual) malls. They’re out buying their Christmas couture and loads more. But the thing is, we’ve been forced to be confined to our homes and for some, the freedom to spend and go wherever they like has meant that they’re letting rip. Some (ahem, US shoppers) aren’t holding back. They want to treat themselves. To some new sneaks, dazzling dresses and a whole bunch of other glorious things. Because they can. 

Last Christmas we lot were in lockdown. Families couldn’t celebrate together. So, it didn’t feel like a proper festival. Which is why, I’m not in the slightest bit surprised that people are splurging for the festivities. They want to feel life in its most normal form. Because it’s now (somewhat) possible. And that means going out to the shops. And spending real money. 

Being restricted for quite some time has definitely changed people – and their habits. What you loved doing pre-lockdown might not be what you like doing anymore. It’s no longer your go-to. Or, what you hated might be the very thing that you now love, more than anything!

And since our habits have changed it’s no surprise then that consumer spending has also changed. Some for the better (like taking up investing) and some for the worse. I’d be really interested to hear what kind of habits you’ve changed/adopted and how that has (if at all) changed the way you spend! 

Don’t let it go 

We’ve built up such good habits during lockdown. We didn’t spend much. Time, sure; but not money! We made do with less. We were, in a sense, forced into a much simpler way of life. And to be honest, I loved it. I baked with my family. I enjoyed wearing the same clothes (for literally months on end) without all the hassle of getting dressing up. And wanting to buy yet more clothes that deep down I knew I didn’t need.

But this past year, I didn’t feel like I needed more. I mean there was nowhere to go. And I realised I had plenty of stuff in my cupboard. Post-lockdown, all my clothes suddenly felt new again. And it was great. 

So do what you can to hold onto those great habits you’ve managed to build. Like working out more often, spending more time outdoors, being around loved ones all while spending less money (and time) on things that aren’t good for you.

The thing is, we humans are ever so quick to adapt. This is both a good and bad thing. It was good when Covid broke out. We thought we wouldn’t cope and months later, we were baking banana bread and Tik-Toking. We were coping. We had to figure out a way to do so because the alternative is way worse. 

But now that life has mostly returned to normal (though I’m not sure how long that will last for!) and we’re suddenly reverting back to our old ways. We’re out more so we’re spending more. We’re probably not really thinking about what we’re spending on. Or how much we’re spending since we barley spent all year right?! 

But spending willy-nilly is unhealthy. Everything in moderation. From spending to eating. We don’t need five new dresses for the Holidays. Nor another scarf (even though we’ve got a whole bunch we don’t touch) and that matching hat. Seriously. Oh, and the sales aren’t gonna make matters easier! 

The economy is still uncertain. The Fed is still reluctant to raise interest rates which means we could be living with higher levels of inflation for quite some time. And this means that everything will keep on going up. From your coffee to your clothes. 

Control your money. Don’t let it control you. It’s the only way to win this thing. 

And, my friend, hold onto those new habits of yours. Make them permanent. 

You won’t regret it. 

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.