Cost Push Inflation: Consumers Spend Less & Go Out Less

Americans have begun pulling back spending on flights, hotels and restaurants in a sign that they are looking to find ways to cut costs in inflationary times. “We are seeing a broadening economic slowdown,” said Lydia Boussour, senior economist at EY-Parthenon. “It started with the housing sector, then manufacturing. And now we’re seeing service activity stalling.”

Cost push inflation has affected nearly every sector and as a result, consumers are spending less on experiences and going out less. Business in restaurants, hotels, and airline tickets are seeing drastic decreases in the wake of increased spending over the previous months.

This is a bad sign, especially since the summer months are generally ripe with traveling, vacations, and consumer spending. Across all sectors, data has shown consumer spending in nearly all categories have been in decline since April 2023 due to cost push inflation.

To counteract this decline, the central bank is expected to pause increased interest-rate hikes, and this would mark a held rate since March 2022.

Signs of Relief?

If inflation does not slow soon, and spending continues to decrease, there might be more businesses that close their doors for good. On the plus side, economists say that the silver lining in the decreased demand could be a drop in inflation.

As usual, society suffers from an imbalance as the already-rich continue to grow their wealth and can afford to spend more, while those in lower-income groups struggle to save money, pay off debt, and make ends meet.

In conclusion, business owners across every market and segment are complaining about the drastic slowdown in customer spending, and how they are struggling to stay afloat. With no easy answers in sight, only time will tell how the economy levels out throughout 2023.