Inflation split: the rich splurge, the poorest retreat

In this image provided by Northern Illinois Food Bank, Kisha Galvan and her grandchildren pose for a photo after stocking up on food from the Northern Illinois Food Bank on May 26 in Rockford, Illinois. Galvan was able to stock up on groceries for the week and buy extras like clothes and shoes at Walmart for his kids last year. (Haley Overbeek, Northern Illinois Food Bank via AP)

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NEW YORK — Lower-income Americans are once again struggling to make ends meet.

A confluence of factors — expiring federal stimulus checks and rising inflation in staples like gasoline and food — are creating an even greater barrier between the haves and have-nots.

While wealthier shoppers continue to boast, low-income shoppers have retreated faster than expected in the past two months. They are focusing on necessities while turning to cheaper items or cheaper stores. And they’re only buying a little bit at a time.

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

Kisha Galvan, a 44-year-old mother of eight children ages 9 to 27, managed to stock up on groceries for the week and buy extras like clothes and shoes at Walmart for her kids last year.

But without government support related to the pandemic and inflation hovering at an almost 40-year high, she is buying more canned food and relying on the local food pantry several times a week instead of once a week.

“I buy it meal by meal,” said the Rockford, Illinois resident, who has lived with a disability for the past 15 years. “Before, we didn’t have to worry about what we were going to get. We just took it.”

The deep split in spending was reflected in the latest round of quarterly earnings for retailers. At the higher end of the spectrum, Nordstrom and Ralph Lauren reported stronger-than-expected sales as their well-heeled shoppers returned to pre-pandemic routines. Lululemon also reported strong quarterly sales of its expensive sportswear.

But on the other hand, Walmart customers are shifting to cheaper snacks and half a gallon of milk from gallons full. Kohl’s, a mid-priced department store, said its customers were spending less on each visit. And the Gap lowered its annual financial outlook, specifically citing inflation pressure on its low-price Old Navy chain.

Both Dollar Tree and Dollar General, which have historically benefited from falling buyers during tough economic times, raised their sales outlook last month. Meanwhile, discount store Big Lots suffered sharp sales declines in the last quarter, seeing cuts in items like furniture.

“We are now in a new chapter where high inflation is greatly limiting consumers’ ability to make discretionary purchases, especially of high-value items,” Big Lots CEO and President Bruce K. Thorn told analysts at the end. from last month. “We know that many Americans are now living paycheck to paycheck again.”

The pullback among low-income shoppers did not affect overall spending, which is still on the rise. In April, the government said retail sales beat inflation for the fourth straight month, a reassuring sign that consumers – the main drivers of the US economy – are still providing vital support and helping to ease concerns that a recession could be close.

But analysts believe even wealthy buyers could pull back if the stock market continues to weaken. Marshal Cohen, chief consultant at market research firm The NPD Group Inc., said the stock market affects higher-income buyers “psychologically” and that further losses on paper could reduce them.

The spending climate has changed since last October and November, when the Fed conducted a survey and found that nearly 8 in 10 adults were “doing well or living comfortably” when it came to their finances in 2021, the highest proportion to say so. since the survey began in 2013. For those earning less than $25,000, the proportion who said they were doing at least well jumped from 40% to 53%.

But inflation has taken a bigger bite out of personal budgets and wiped out some of the wage gains, especially for those earning less. The national average cost of a gallon of gasoline, for example, jumped to $4.76 from $4.20 a month ago and a painful 56% from a year ago, according to the AAA.

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

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

Meanwhile, the poorest fifth of Americans have used up the savings they’ve accumulated during the pandemic, in part through stimulus checks, child tax credit payments and higher wages, according to calculations by Jeffries, an investment bank. American bank accounts. The other four-fifths of U.S. households are still heavily stocked with additional savings since the pandemic, with much of the top fifth.

Inflation is playing out differently in companies that cater to buyers with varying income levels.

Michelle Gass, CEO of Kohl’s, said some shoppers are switching to premium brands like Tommy Hilfiger and Calvin Klein, while others are moving to lower-priced store brands. Macy’s has increased its annual outlook based on the spending habits of its wealthiest shoppers, but its customers with average household incomes of $75,000 or less are migrating more to its off-price brand.

The current environment is making it difficult to pass higher costs on to retailers. Macy’s, for example, suffered a backlash after raising prices on some casual wear and home accessories.

“We’re definitely seeing some pullbacks in some of the prices,” Macy’s CEO Jeff Gennette recently told analysts on the company’s earnings call. “We made adjustments there.”

For the Northern Illinois Food Bank – like many food banks – food costs are rising amid dwindling donations.

“Inflation and rising food costs mean the food bank has to make tough choices about our budget,” Yurko said. “What food can we consistently provide and what food can we only provide if it’s donated to us?”

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