Consumers will spend less on clothing and alcohol if inflation continues

Consumers around the world are spending less on clothing, cosmetics and alcohol and are looking for cheaper groceries as they struggle with rising inflation.

A global survey by EY, conducted ahead of Russia’s invasion of Ukraine on February 24, found that 52 percent of consumers have changed their spending because affordability has become scarce.

Nearly two-thirds (62%) of low-income earners are being pressured by rising prices, although the survey says middle-income (48%) and high-income (42%) earners are also cutting spending, finding cheaper alternatives, or buying less insignificant.

EY’s Future Consumer Index — a quarterly survey of 18,000 people — found that well over a third of consumers (38 percent) are spending less on clothing, 35 percent less on beauty and cosmetics, and 30 percent less on alcohol.

Many are also looking for cheaper alternatives for fresh groceries (20 pieces) and packaged groceries (19 pieces).

Irish prices rose to a 22-year high of 6.7 percent year-on-year in March on rising transport, housing and fuel costs. House prices rose 15.3 percent in the year to February, the highest since April 2015, according to the National Statistics Office.

The Economic and Social Research Institute (ESRI) expects Irish inflation to peak at around 8.5 per cent this summer, while the Treasury has forecast an annual average of 6.2 per cent.

Inflation in the euro zone jumped to a record high of 7.5 percent last month as the European Central Bank left open the possibility of interest rate hikes as early as the summer. Central banks in the UK and US have already started raising interest rates as prices have surged more than 7 percent in the last month.

A recent survey by KBC Ireland found that 85 per cent of Irish shoppers expect to limit their spending due to higher inflation and increasing uncertainty about the war in Ukraine.

“With their dwindling purchasing power and looming uncertainty, Irish consumers need to reconsider their spending decisions, not only in relation to ‘nice-to-have’ purchases, but also when it comes to essential goods and services,” said Ivan O, Consulting Partner by EY Ireland’s Brien.

The EY survey also found that 42% of global consumers plan to spend more on “experiences” over the next year, while 39% of people are “less inclined” to engage in activities outside of their own home.

And 42 percent of respondents say they will only buy from brands that align with their values, rising to 48 percent for people born after 1980.

It means that “power is shifting from the brand to the consumer,” Mr O’Brien said, with Irish companies under more pressure than ever to offer value for money.

“The goodwill we have shown towards inferior products and services is waning and Irish businesses should not confuse customer retention with customer loyalty.

“As we spend less on clothing, beauty and cosmetics products, it is not natural that Irish consumers will reverse their lockdown instinct to save rather than spend.

“The return of inflation is also fueling confirmation bias as consumers continue to engage in cautious pandemic-era decision-making processes, leading to fewer non-essential purchases.”