By Claire Ballentine and Charlie Wells
The steepest inflation in more than 40 years is rattling budgets across the U.S., fueling changes in spending habits and people’s relationships with one another.
About 84% of Americans plan to cut back on spending as a result of higher prices, according to a nationally representative survey conducted by the Harris Poll for Bloomberg News. The biggest cuts involve eating out and impulse purchases, along with driving and experiences like concerts and sports.
With inflation now at 8.5%, the highest since 1981, consumers are having to make some tough choices. Although the job market and economy are on solid footing, wage growth isn’t keeping up with prices for everyday items, and consumers are getting pinched from all sides as the Federal Reserve starts raising interest rates.
“The sharp breakdown in the collective consumer mood reflects inflation worries more than anything else,” said Jim Baird, chief investment officer for Plante Moran Financial Advisors. “The economy may be slowing, but it’s still growing at a solid clip and job creation remains strong. It’s the fact that they are watching their income gains disappear and then some in their grocery and gas bills that is disheartening.”
More than 70% of respondents said they’re feeling the effects of inflation the most in gas prices and groceries. This sentiment was backed by Tuesday’s consumer price index data for March, which showed gasoline prices surged 48% and food rose 8.8% from a year earlier. The poll was conducted among a nationally representative sample of 2,100 Americans during two weekends in April, before the inflation report.
Ian Mills in Alexandria, Virginia, is having to drastically alter his grocery shopping because of the higher prices. The 30-year-old who works in the military has three kids, and usually tries to buy fresh produce and organic food, but now he has switched to more canned and frozen goods.
“The health of the economy is affecting our physical health,” he said. “It’s changed how I approach daily life. There’s a lot less money to spend on more frivolous things.”
About 40% of Americans say that inflation is causing them to spend less on items that may be good for their health but are more expensive. Millennials are most likely to do this, followed by Gen Z and Gen X.
“If inflation persists, it could be a headwind for consumer spending,” said Ross Mayfield, an investment strategy analyst at Robert W. Baird & Co. “As a consumer, it just sucks — there’s not a redeeming quality unless you’re seeing wage growth keep up.”
Last month, hourly earnings rose 5.6% from a year earlier. That’s the most since May 2020, but isn’t enough to keep up with inflation. In the Harris Poll survey, only a third of respondents reported receiving a raise due to inflation, and 20% said it wasn’t enough.
Spiking prices are also changing Americans’ financial relationships with one another.
At a time when the topic dominates headlines, the nightly news, political debates and even “Saturday Night Live,” the Harris Poll shows that inflation has become a popular excuse for Americans not to buy or do something, even when cost wasn’t actually a factor.
Nearly half of Americans reported using rising prices as a pretext. Strikingly, 51% of high-income households say they have used inflation as an excuse even if higher prices were not actually an issue, compared with just 44% of low-income households. This is despite the fact that lower-income Americans have been squeezed the most by rising prices.
At home, 53% of couples say inflation is prompting them to talk about money more often with their partners. A third say that rising prices have had a negative impact on their relationships.
Price increases are revealing the spending choices Americans are willing to make relative to others as well — and it seems pets rank higher than humans. Some 71% of respondents say they are likely to sacrifice the quality or quantity of spending on goods for themselves due to inflation. That number fell to 56% when it came to people’s spouses or partners, and just 48% said they would sacrifice quantity or quality when spending on their animals.
Rising prices largely have a negative effect on Americans’ quality of life, yet 57% say they see some upside. Over a third cite cutting back on impulse purchases as a benefit. Around 21% see a benefit in increased pay, while 18% say it makes debts easier to pay off.
That doesn’t make their outlook any brighter. Only 27% say they see inflation ending this year. Nearly a third expect it to last into 2023, while 20% say it will continue indefinitely.
More stories like this are available on bloomberg.com.