Inflation Not a Threat? Most Consumers Aren't So Sure

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In the growing debate over inflation, most consumers are going with what their wallets are telling them.

Despite assurances from prominent Federal Reserve officials and some economists that inflation poses little threat, about three-fourths of respondents in a recent survey believe prices are headed higher over the long term.

That’s bad news for the nascent economic recovery, which could be doomed by inflation before it even has begun.

“This is a middle-America kind of story,” said Mary Delk, director at Deloitte Consulting, which surveyed 1,050 consumers to see where they stand on inflation and how it will affect their spending plans. “We have to look at it through the consumer’s eyes. When they really have that pain at the pump and in food prices is where you’ll see the impact most quickly.”

Some highlights from the survey, which had a margin of error of plus or minus three percentage points:

  • Nearly three-fourths, or 74 percent, said rising prices will slow their spending in coming months. Of that group, 82 percent of those over 45 said they would be affected, Delp said.
  • More than 2 in 5–or 43 percent—said they think the economy is still in recession.
  • Just more than a quarter—27 percent—said stores are offering better bargains this year than last.
  • Just 24 percent of those earning less than $100,000 a year said they have gained more confidence in the economy over the past six months.

Interestingly, Deloitte officials, in analyzing the results, found that consumers remain fairly resilient but are wary of the impact continued price increases will have.

But further trends higher in food and energy could be terrible news for anyone believing that the economy is about to turn the corner.

Major financial firms including JPMorgan Chase and Bank of America Merrill Lynch , have cut their economic forecasts, in part because of headwinds from higher prices, despite hopes that activity is picking up.

Gluskin Sheff economist David Rosenberg forecast Tuesday that consumer spending will “slow precipitously in coming months and quarters” as the recovery drags and a payroll tax cut expires.

The Deloitte study, then, confirms that until consumers are convinced that inflation threats have been tamed, the recovery remains tenuous.


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