[Global Focus] Why Does the US Open Wallets Wide Despite Fear of Inflation?

7 out of 10 People Say "Spending Habits Have Changed"
Spending Remains Unchanged... Revenge Spending Explodes
Rapid Recovery in Dining Out and Sports Demand

[Asia Economy Reporter Kim Hyunjung] The United States, which held an unprecedented "money party" under the pretext of responding to COVID-19, is now facing the backlash of high inflation. Inflation originating from the U.S., appearing for the first time in 40 years, shows signs of spreading worldwide. Americans are also changing their spending habits due to concerns over soaring prices.

At the same time, Americans are preparing for "revenge spending" by resuming leisure activities they had refrained from over the past two years. The increased savings of Americans, accumulated from the poured-in fiscal stimulus, are expected to act as a buffer against the burden of inflation, leading to forecasts that the market impact will not be as severe as feared.

◆Will Inflation Change Consumption Patterns?= According to the U.S. Department of Labor, the Consumer Price Index (CPI) in January rose 7.5% compared to the same period last year, marking the fastest increase in 40 years since February 1982. Faced with unprecedented rapid price increases, American consumers are taking the situation "seriously." In a survey conducted by Quinnipiac University from the 10th to the 14th among 1,321 American adults, Americans viewed inflation (27%) as a more serious immediate challenge than COVID-19 (10%) and other pressing issues.

The survey results show that most Americans feel changes in their spending habits due to overall price increases, including food prices and oil prices. 72% of all respondents answered that their "spending habits are changing," while only 28% said there was no change.

The impact of inflation is felt regardless of political affiliation, race, or age. 83% of respondents who support the Republican Party and 57% of those who support the Democratic Party sensed changes in consumption. Whites (69%), Blacks (66%), and Hispanics (84%) all felt pressure from inflation to varying degrees. When divided by age, all groups responded similarly: 18-34 years old (77%), 35-49 years old (71%), 50-64 years old (70%), and 65 and older (62%).

◆Wallets Are Not Closing= The "change in spending habits" does not mean a reduction in spending. In the U.S., there are signs of explosive revenge spending on leisure activities such as travel, camping, and entertainment, which had been restrained due to COVID-19 restrictions.

According to The Wall Street Journal (WSJ), although visitor numbers at Disneyland theme parks in the U.S. have not yet recovered to pre-pandemic levels, spending per visitor was found to be 40% higher than in 2019. Airbnb announced that summer season lodging reservations this year increased by 25% compared to 2019. With the U.S. lifting mask mandates, demand for dining out is also expected to rise. Ramon Laguarta, CEO of Pepsi Bottling Group, explained, "Consumption at home remains high, but the restaurant business is accelerating."

Demand for sports events is also showing strong recovery. Aramark, a major food supplier to stadiums, reported that crowds have returned to the National Football League (NFL). John Zillmer, CEO of Aramark, said he is preparing for attendance exceeding pre-COVID-19 levels during the Major League Baseball season and forecasted, "With increasing baseball demand, this year’s performance will be good."

Americans concerned about inflation do not seem pessimistic about their current financial situation, which aligns with these forecasts and trends. In the same Quinnipiac University survey, when asked about their recent financial situation, the largest number of respondents answered "good" (55%), followed by "very good" (13%) and "not so good" (22%). Only 8% described themselves as poor.

However, the majority gave a negative evaluation of the national economy. Most viewed the U.S. financial condition as poor (42%) or not good (35%), while only a minority considered it good (20%) or very good (2%).

[Image source=AP Yonhap News]

Major Retailers Leverage Price Competitiveness
Turning Inflation into a Sales Opportunity

◆"Consumers Will Become More Sensitive"... Companies Seeking Opportunities= Some retail companies, whose business environment has worsened due to inflation, are taking the recent crisis as an "opportunity."

Doug McMillon, CEO of Walmart, recently said in a conference call, "Inflation is making middle-class, low-income, and even wealthy households in the U.S. more sensitive to prices," adding, "This works to our advantage." The company's existing business policy of leveraging economies of scale to procure goods at low prices from suppliers and manufacturers could be a boon in the current environment where consumers are more price-conscious.

Brett Biggs, the company's Chief Financial Officer (CFO), told CNBC in an interview, "Currently, there is no significant change in shopping methods," but predicted that consumers would respond to inflation by switching to cheaper brands or buying smaller package sizes. In fact, Walmart's sales in the fourth quarter of last year exceeded Wall Street expectations, increasing by 5.6% in the U.S.

The market is also supporting this confidence. Notably, Goldman Sachs set Walmart's target stock price at $175, about 27% higher than the current price ($137.99), based on Walmart's competitive edge in e-commerce compared to smaller retailers. According to recent data from marketing research firm Chicory over the past three months, 30% of online grocery shoppers used Walmart.

Warehouse discount stores like Costco are also expected to show strong competitiveness. Costco's e-commerce sales in November last year rose 14.3% year-over-year. Dollar Tree and Dollar General, well-known as "1-dollar shops," are also considered beneficiaries of U.S. inflation.

There is also analysis that the savings accumulated from U.S. COVID-19 fiscal programs will act as a buffer against inflation. Nomura Securities estimated that as of the end of last year, Americans had accumulated $2.4 trillion in excess savings from COVID-19 fiscal support. Robert Dent, Chief Economist at Nomura Securities, forecasted, "The excess savings consumers have this year will partially offset the negative effects of financial issues."

This content was produced with the assistance of AI translation services.