How are consumer spending habits changing with inflation?
Undeniably, the economy has gone through significant changes recently, and as a result, consumers have been directly impacted. The following article will explore how the economy has changed and how this has impacted both consumers and businesses.
Why are spending habits changing?
There are multiple reasons for the recent shift in the economy and the rise in inflation rates.
The covid-19 pandemic has had detrimental impacts on the economy, as many businesses struggled to survive, seeing a surge in unemployment and a decrease in consumer spending. This was particularly prevalent in industries such as hospitality and travel. Many sectors are still navigating the damage of this and aren’t expected to fully recover for several years.
Not only did the pandemic impact businesses’ ability to operate, but once restrictions began to be lifted, demand for gas also began to increase. However, due to a shortage in supply, this demand could not be met, seeing the initial increase in gas prices begin in 2021. The increases have only continued and have caused an increasing strain on the economy ever since. Fortunately, there is evidence that the wholesale price of energy has already begun to decrease, which will eventually trickle down to consumers.
The pandemic is not the only culprit in causing a rise in energy prices, the war in Ukraine has also had an impact. After Russia declared war on Ukraine, many nations decided to no longer import oil from Russia, as a protest against their decision. While being a political stance, this decision has also created a significant economic impact.
How is it impacting consumers and businesses?
The aforementioned reasons have all directly contributed to the current cost of living crisis, which has resulted in consumers having significantly less disposable income. As a result, consumers are reviewing their current spending habits and making cutbacks, especially on non-essential products and services.
This is causing businesses to see a noticeable decrease in both turnover and profit, forcing many companies to make changes such as making necessary redundancies.
For businesses, the current economic climate has caused a knock-on effect throughout most supply chains. With the cost of most goods and services having increased, the majority of companies are finding it nearly impossible to not pass some of this on to consumers.
What are consumers doing differently?
Consumers are no longer able to shop in the same way they used to, and shopping habits have noticeably changed recently.
People are now prioritising price over other factors and spending more time shopping around for cheaper alternatives. This has seen discount shops and supermarkets, such as Aldi, see increasing profits and popularity.
Brand loyalty is no longer as strong with consumers as price is now being considered more important. This means that many brands are no longer able to rely on repeat custom from customers who once bought from them regularly.
With less disposable income, many consumers are now borrowing more in order to survive during the current economic crisis. Loans and credit cards are being used for day-to-day items such as food shopping and household bills, as consumers are really feeling the impact of inflation increases.