Brief | Creating Resilience

Consumers calibrate discretionary spending to inflation level

August 22, 2022

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Consumption boomed during the pandemic, fueled by consumers’ excess savings and fiscal stimulus. Today, however, consumers face high inflation, brought about by too many dollars chasing a constrained supply of goods.

This has forced consumers to calibrate their spending. When gasoline prices surged by 20% in March, consumers pared back discretionary spending. Gasoline prices have fallen considerably since mid-June (now less than $4 per gallon nationally), prompting consumers to increase discretionary spending.

Spending’s sensitivity to higher gasoline (and also food) prices suggests consumers do not have capacity to absorb further economic shocks. Though gasoline prices are trending down, they remain 37% above the average price over the past 10 years, imposing continued strains on household budgets.

Inflation’s deleterious effect on consumer spending means investors should take into consideration both CBRE EA's baseline forecast, which envisions a near-term moderation of inflation, and downside forecast, which assumes high inflation persists for longer.*

 *To subscribe to CBRE Econometric Advisors’ economic and real estate outlook scenarios and additional reports, click here.

*June is the latest month we have retail sales by category data.
U.S. Census Bureau, U.S. Bureau of Labor Statistics, Energy Information Administration, CBRE Econometric Advisors

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