TIPP: Inflation - The Grinch that stole Christmas

By TIPPINSIGHTS EDITORIAL BOARD, TIPP Insights

“‘Santa is coming after all’; Investors celebrate a cooler-than-expected inflation report,” read one sample headline after CPI inflation fell to 7.1%.

While the numbers were “cooler-than-expected,” it has not yet come down to comfortable and breezy levels. The reality is that inflation persists, and it is hurting the holiday season. High prices are on everyone’s minds, whether buying Christmas cookies or toys for Johnny or making travel plans.

Here’s the mechanism of the disease.

An average household needed over $5,000 extra in 2022 to stave off the effects of inflation. That said, most Americans say that their wages have not kept pace with rising prices. Only one in five (22%) say they have.

U.S. real average weekly earnings, measured year-over-year, have been negative for a painfully long stretch of twenty months.

Inflation is not just affecting household budgets. Americans are pinching pennies, stretching the dollar, and still finding little to put aside. Dwindling savings and the inability to save for a rainy day is a precarious position many find themselves in.

To cope with inflation, Americans save less or borrow using credit cards. The personal savings rate was only 2.3% in October.

Credit cards and other revolving debt are at an all-time high, at close to a trillion dollars.

Inflation is squeezing Americans, and no amount of media spin can change the reality. In the latest Investor’s Business Daily/TIPP Poll of 1,351 adults, we asked a series of questions to gain insights related to holiday spending.

The picture that emerges is a somber one. Americans are bearish, watching every dollar. They are not convinced that inflation is under control. Further, most think that we are in a recession. That perception is driving their money decisions. Their spending controls two-thirds of the economy.

Holiday Travel

The holiday season allows Americans to slow down and undertake long-distance travel. This year an overwhelming 73% are reducing their long-distance travel. The following chart shows that the trend is prevalent across all income groups.

Holiday Spending

Over two-thirds (69%) are cutting their holiday spending. While under $30K households (74%) are most likely to hold back, more than half of the upper-income brackets are also being careful with their holiday budgets. According to the poll, 66% of those with $50K- $70K income and $75K+ income are planning to spend less.

This is terrible news for retailers and businesses hoping to cash in on the season.

Holiday Parties

Despite the holidays, many are likely to give get-togethers with families and friends a miss. Three in five (63%) plan to reduce holiday parties.

Holiday Gifts

Christmas is the season for giving and exchanging gifts, a common tradition many households follow. But, most Americans plan to reduce holiday gifting to cope with inflation.

Further, over one-half (58%) are only buying items that are on sale. Also, most prefer to shop in inexpensive stores and maximize value. This year, thrift is the name of the game.

In summary, as our data shows, persistent inflation is a dampening factor behind holiday celebrations this year for most people. The resilient citizens are doing their best and choosing prudent courses of action to counter inflation and make the most of the holidays.