Research shows five ways consumers respond to price increases | So Good News

People are also cutting back on spending and changing their attitudes toward saving and borrowing after a year and a half of inflation, according to a special report from the University of Michigan’s Surveys of Consumers.

Consumers reported an all-time low in consumer spending this summer. By October 2022, future inflation expectations were 5% and long-term inflation expectations were 2.9%. Both rates are very high and remain well above the Federal Reserve’s target of 2% inflation, according to Joanne Hsu, director of research at the UM Institute for Social Research.

To create this special report, the survey asked consumers about recent and future changes in their attitudes and spending habits in August, September and October of this year.

“Throughout 2022, consumers will reflect on how inflation is affecting their lives, closely following the spread of bad news about inflation,” Hsu said. “Now we can see the effect of behavior as well: many consumers have changed their expectations to continue the rise in inflation by changing their money.”

Some of the questions asked of consumers were also collected in 1979 and 1981, providing historical data, even though by then consumers had moved on from a decade of high inflation, Hsu said.

Specifically, the special report found:

• About 60% of consumers have already cut their spending due to inflation, and many consumers plan to cut back in the year ahead.
• Consumers who reduce their spending are less optimistic and have higher inflation expectations.
• Consumers are more reluctant to borrow to make major purchases than to save, which suggests that consumers can recoup their spending while reducing their spending.
• Advance buying intentions – a part of price psychology in which consumers buy as much as possible to avoid future price increases – are not seen as common, but they are favored by a very small number of consumers and remain a risk factor for the future. .
• Consumers report more information about inflation than they did in the 1970s, which may affect their attitudes.