Here’s how inflation has impacted consumer behavior, according to University of Michigan survey

FILE - This Aug. 11, 2019 file photo shows credit cards in New Orleans. U.S. consumer borrowing fell in March for the first time in more than eight years, with the category covering credit cards dropping by the largest amount in over three decades, the Federal Reserve reported Thursday, May 7, 2020. (AP Photo/Jenny Kane, file) (Jenny Kane, Copyright 2019 The Associated Press. All rights reserved.)

ANN ARBOR – After a year and a half of high inflation, people are adopting more conservative spending habits and adjusting their attitudes toward borrowing and saving, according to a new report from the University of Michigan’s Surveys of Consumers.

This summer, consumer sentiment was found to be at an all-time low. As of October 2022, year-ahead inflation expectations stood at 5%, with long-term expectations at 2.9%. According to Joanne Hsu, director of the surveys at the U-M Institute for Social Research, both metrics far exceeded that Federal Reserve’s target inflation rate of 2%.

For the special report, consumers were asked about changes in their attitudes and spending for both the present and future in the months of August, September and October.

“Throughout 2022, consumers have expressed how inflation has eroded their living standards, closely tracking the proliferation of negative news they hear about inflation,” Hsu said in a statement. “We can now see the effects on behavior as well: a majority of consumers have adjusted to their expectation of continued inflation by adjusting their spending.”

According to a U-M release, the report found:

  • About 60% of consumers have already scaled back their spending in response to inflation, and even more consumers plan spending cuts in the year ahead.
  • Consumers who scale back their spending have lower sentiment and higher inflation expectations.
  • Consumers are more reluctant to borrow for major purchases than to dissave, which suggests that consumers may pull back their spending even more as they draw down their savings.
  • Advance buying motives—a component of inflationary psychology in which consumers make large purchases no in order to avoid price increases in the future—do not yet appear to be widespread, but are favored by a sizable minority of consumers and remain a risk for the future.
  • Consumers report more awareness of news on inflation than in the 1970s, which may influence their attitudes.

About the Author:

Meredith has worked for WDIV since August 2017 and was voted one of Washtenaw County's best journalists in 2019 by eCurrent's readers. She covers the community of Ann Arbor and has a Master's degree in International Broadcast Journalism from City University London, UK.