Consumers may already be reeling from higher prices for things like groceries and energy, but S&P Global Ratings says inflation has more surprises in store.
“Packaged food and household products companies have yet to pass through all of
their price hikes, and so consumers will likely face more sticker shock before prices stabilize,” wrote Sarah Wyeth in a note published Thursday.
“As grocery and gas bills increasingly squeeze budgets, we expect that consumers will defer some expenditures and switch to less-expensive brands in the second half of the year.”
The U.S. inflation rate has reached a 40-year high of 7.5%. With prices heading north, some shoppers are already tightening their belts with the help of off-brand everyday goods.
But for many shoppers, government stimulus programs and other COVID-related conditions have offered a cushion.
“We believe the financial comforts of excess savings are supporting this strong consumer spending, as is the tight job market,” the S&P wrote.
“Our rating actions in the U.S. retail sector continue to reflect this positive momentum.”
The S&P forecasts that inflation will ultimately drive shoppers to more closely consider their budgets. Retailers will have to respond with discounts and other measures.
“We believe the credit quality improvement will slow in the year’s second half, as retailers will need to resort to sales and promotions to move products when consumers are less eager to shop.”
The SPDR S&P Retail ETF
has edged up 0.8% over the past year, but has tumbled more than 24% over the last three months.
The benchmark S&P 500 index
is up 11.6% for the last 12 months.