Inflation is a word that strikes fear in the hearts of even the most optimistic of consumers as it means higher prices at the grocery store and the gas pump.
The economic roller coaster ride the U.S. economy has been on for the last few years may result in inflationary times. Add to this the recent increase in prices on staples such as gasoline, food and medicine, and the fear level goes up a notch.
Economists Say Spending (and Prices) is Up
According to data provided by the U.S. Bureau of Economic Analysis (BEA), nine out of 10 consumers expect food and gasoline prices to increase more in the upcoming months. An increase in prices on goods correlates with an increase in spending by American consumers. After all, consumers need these items and therefore have no choice but to pay the price.
Credit-land.com economists recently conducted a survey to put the thought processes and spending habits of Americans into perspective. The results of the survey provide insight into the short-term outlook of American consumers regarding spending and inflation.
The Credit-Land survey consisted of 1,000 consumers. Of the three primary expenses (gasoline, food and medicine), 78% of the survey respondents said that the cost they have the most control over is gasoline spending. They can control these costs by cutting back on the use of their cars and trucks for transportation. Survey respondents also said that they cannot control, or have the least control, over the ever increasing prices on food and medicine.
What the Consumer Outlook Index Reveals
The RBC Capital Markets Consumer Outlook Index seems to back this data up. According to the monthly data, 32% of U.S. consumers have cut back spending in other areas of their life in order to compensate for the increase in gasoline prices. The national average for gasoline is $3.88, which is up from $3.20 just a month ago. About 18% of RBC Capital Markets Consumer Outlook Index respondents said they would cut back spending in other areas if gasoline prices reach $3.75 a gallon. Other respondents, four out of 10, say that $4 a gallon is the threshold at which they will cut discretionary spending to compensate for the gas price increase.
According to Tom Porcelli, the chief U.S. economist at RBC Capital Markets, “There has been quite a lot of debate about the impact of rising gasoline prices on consumption in general. Specifically, the conversation focuses on what particular price level of gasoline would lead to a shift away from discretionary spending. The RBC survey finds that this level has already been breached for 32% of consumers and is within range for another 18%. Somewhat encouragingly, however, is that 40% of Americans place their threshold at or north of $4 per gallon.”
Further, the Credit-Land survey found growing concerns about inflation. Consumers expect that higher raw material costs will drive even greater price increases in the sectors that already give them the most trouble — gasoline, food and medicine.