Inflation is easing but it’s still higher than the three-year average pre-pandemic
Consumer spend remained positive through December 2022, despite consistent pressure for high inflation rates. In particular, the second half of the year saw a steady decline in inflation with the year closing at a 6.5% inflation rate. In looking at retail sales, consumer shopping didn’t plummet, as we would have predicted. Rather, people continued to spend. In fact, consumers spend outpaced inflation in the back half of the year.
But there are still challenges ahead. While inflation is easing, it’s still higher than the average was in the three-years before the pandemic – when it was 2%. We can expect the rest of this year to one of ‘disinflation’ in which we’ll see a gradual cool down, perhaps a few more hikes to get things closer the 2% target – which we’ll see closer to 2024. We’ve got a bit of a road and it’s going to continue to get interesting.
Consumers have seen offsets and are still spending
Inflationary rates are not equal, and consumers have seen distinct offsets that have helped regulate the market. Gas prices have declined. The average price of a gallon of gas declined from a $5 a gallon peak in June to $3.27 a gallon in January. Supply chain issues that previously inflated the cost of goods continue to settle. Additionally, consumers have also shifted spending away from physical goods, toward services like travel and entertainment. As a result, the cost of goods has dropped for two straight months.
This is positive but it’s important to consider that while we have seen a bit of deceleration, we’ve also seen increases in the cost of living. Food, rent and clothing we’re up month-over-month in December and there were significant increases throughout 2022. Many consumers are feeling that squeeze, and even those who are not immediately impacted in their daily bank are being more circumspect in their decisions and spend.
Savvy shopping will stay top of mind
To sum it up, while we’ve made progress – we’re not out of the woods. Therefore, Savvy shopping will stay top of mind with consumers. 8 out of 10 US adults think this will be a year of economic difficulty. 56% of Americans said they we’re going to save more in 2023 and nearly half cite inflation’s impact on everyday expenses and savings as their top concern.
So why are people still spending? Many people are still using their savings and credit cards to fund purchases. However, these discretionary funds are beginning to run their course as the covid piggy banks wane and interest rates rise. Even though interest rates on savings accounts are higher than we’ve seen in some time, following the recent run of rate hikes, the inflation rate is still higher than all of these rates. So any money in savings loses purchasing power, over time.
This means that consumers will be searching for way to save and to feel smarter in their purchases.
Cash Back through Rakuten becomes a powerful tool to meet the consumer’s need and demand without sacrificing margin. Rakuten is primed to do this with you.
Sentiment and shopping on Rakuten remain positive
Rakuten fared well in 2022 and 2023 looks strong. To start, shopper sentiment is very strong. That’s a big deal in the current climate! 61% of Rakuten shoppers think of us a leader in the cash back industry. 65% believe we offer rewards at a variety of stores –and feel confident we can give them what they’re looking for. Finally, more than half say Rakuten makes them feel like a smart shopper. The good vibes translate into performance. We’re ending January with spend up +12% YoY and average order value up +17% YoY.
This is fares well for our partners. Brands and retailers spent 2022 focused on acquisition during heavy promotional periods – especially Q4. We’re now in a time where the focus is on efficiency. And that means keeping your shoppers with you.
Reach out to us to discuss how Rakuten can work with you to customize your program to maximize results and efficiency.