The Inflation Gap: The Rich Boast, The Poor Retreat

New York — Low-income Americans are struggling to make ends meet again.

The confluence of factors – expiring federal stimulus controls and rising inflation on staples like gas and food – is creating an even larger gap between the haves and the have-nots.

While wealthier shoppers continue to splurge, low-income shoppers have withdrawn faster than expected in the past two months. They focus on the necessities while turning to cheaper goods or less expensive stores. They only buy a little at a time.

It’s a reversal from a year or so ago when lower-income shoppers, flush with government cash and backed by wage increases, were able to spend more freely.

Keisha Galvan, a 44-year-old mother of eight from ages 9 to 27, was able to buy groceries for the week and buy extras like clothes and shoes at Walmart for her kids last year.

But without the government support linked to the pandemic and inflation hovering around a 40-year high, she is buying more packaged foods and relying on her local food pantry several times a week instead of once a week.

A Rockford, Illinois resident who has lived with a disability for the past 15 years said, “I shop from meal to meal. Previously, we didn’t have to worry about what we were going to get. We just go and get it.”

The deep split in spending was reflected in the retailers’ latest round of quarterly earnings. At the higher end of the spectrum, Nordstrom and Ralph Lauren reported stronger-than-expected sales as affluent shoppers returned to pre-pandemic measures. Lululemon also reported strong quarterly sales of its expensive sports apparel.

But at the other extreme, Walmart customers are turning to cheaper lunch meat and a half-gallon of milk than a full gallon. Kohl’s, a mid-priced department store, said its customers are spending less per visit. Gap lowered its annual financial forecast, specifically citing inflationary pressures in its low-priced old navy chain.

Both Dollar Tree and Dollar General, which have historically benefited from lower shoppers during tough economic times, raised their sales forecasts last month. Meanwhile, Big Lots store suffered a sharp drop in sales last quarter, citing cuts in items such as furniture.

“We are now in a new chapter where high inflation greatly limits the ability of consumers to make discretionary purchases, especially high-ticket items,” Big Lots CEO and President Bruce K. Thorn told analysts late last month. Americans are now living again from paycheck to paycheck.”

The decline among low-income shoppers did not affect overall spending, which remains high. In April, the government said retail sales outpaced inflation for the fourth consecutive month, a reassuring sign that consumers – the primary drivers of the US economy – continue to provide vital support and help ease fears of an approaching recession.

But analysts believe that even wealthy shoppers could pull back if the stock market continues to weaken. Marshall Cohen, senior industry advisor at market research firm The NPD Group Inc. The stock market affects high-income shoppers “psychologically” and more losses on paper could make them drop.

The spending mood has changed from last October and November, when the Federal Reserve conducted a survey and found that nearly eight in 10 adults either “work well or live comfortably” when it comes to their finances in 2021, the highest percentage saying so since. Then the survey began in 2013. For those earning less than $25,000, the percentage who said they were at least okay jumped to 53% from 40%.

But inflation has taken a larger share of personal budgets and wiped out some wage gains, especially for those who earn less. For example, the national average cost of a gallon of gas jumped to $4.76 from $4.20 last month and to 56 percent from a year earlier, according to the AAA.

At the Northern Illinois Food Bank, which feeds people in 13 counties including Galvan and her family, average monthly visits grew to more than 400,000 in February-April, from 311,000 in July-September, according to the president and CEO. Julie Yorko.

Across the economy, average wages jumped 6% in April from a year earlier, according to the Federal Reserve Bank of Atlanta. But although this was the largest increase since 1990, it was still below the 8.3% inflation rate.

Meanwhile, the poorest fifth of Americans have depleted the savings they made during the pandemic in part through stimulus checks, child tax credit payments and higher wages, according to calculations by Jefferies, an investment bank. American bank accounts. Another four-fifths of US households still have a large store of extra savings since the pandemic, with the top-fifth holding a large stockpile of it.

Inflation plays differently within businesses that cater to shoppers of varying income levels.

Some shoppers are trading in premium brands like Tommy Hilfiger and Calvin Klein, said Michael Gass, Kohl’s CEO, while others go to lower-priced store labels. Macy’s has boosted its annual forecast based on the spending habits of wealthier shoppers, but its customers with median household incomes of $75,000 or less are turning more to its non-price brand.

The current environment makes it difficult for retailers to pass on higher costs. For example, Macy’s got opposition after raising the prices of some casual clothes and home accessories.

“We’re definitely seeing some reluctance on some pricing,” Macy’s CEO Jeff Jennett recently told analysts about the company’s earnings call. “We’ve made adjustments there.”

For the Northern Illinois Food Bank — like many food banks — food costs are rising as donations dwindle.

“Inflation and rising food costs mean that the food bank has to make tough choices about our budget,” Yorko said. “What foods can we give away consistently and what foods can we only serve if they are donated to us?”

————

Rogaber reported from Washington.

————

Follow Anne D’Innocenzio: http://twitter.com/ADInnocenzio

Follow Chris Rugaber: http://twitter.com/ChrisRugaber

.