Cutting Discretionary Spending to Offset Higher Prices
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Cutting Discretionary Spending to Offset Higher Prices

March 28, 2025

Rising inflation and an associated decline in consumer confidence led consumers to cut spending on non-necessities in February. Inflation-adjusted spending is on track to post its first decline since the pandemic in Q1. Rising inflation and falling consumer activity highlight tough choices the Fed will face this year.

Trusted Insights for What’s Ahead®

  • Rising inflation will likely limit how much consumers will be able to spend on goods and services, leading to significant deceleration in economic growth this year.
  • Declines in discretionary spending (such as restaurants) among rising goods purchases likely highlight stockpiling behaviors on the part of consumers.
  • Stockpiling ahead of potential tariff implementation on a wide range of consumer goods could lead to a pullback in goods spending later this year, once and if the touted tariffs take effect.
  • A sharp increase in personal income growth (both in nominal and real terms) in February was likely misleading, as it was driven by a one-off rise in government transfer receipts. We expect a weak reading in March as the impact reverses.
  • A pick-up in core PCE price inflation is likely just a precursor to sharper increases in the coming months as tariffs make th
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Author

Yelena Shulyatyeva

Yelena Shulyatyeva

Senior US Economist

Read BioYelena Shulyatyeva

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