Consumer prices soared the most in 40 years in December, a stunning 7% from a year earlier that is crushing real wage gains and sending President Biden's polling numbers to a new record low. The Federal Reserve is expected to embark on an inflation-crushing mission with the first-rate hike expected in March to tame inflation.
According to Target's top executive, high inflation eating into wage gains is expected to directly impact US consumers who will be forced to drive less, eat at home, and reduce their shopping habits.
Chief Executive Officer Brian Cornell told attendees at a National Retail Federation event in New York on Sunday that high inflation will derail consumer spending patterns. Many will resort to cheaper generic-brand goods to save money.
"Some of the historical ways consumers react to inflation will play out again in 2022," Cornell said.
He noted consumers would "drive fewer miles, and you'll consolidate the number of times and locations where you shop. You'll probably spend a little more eating at home versus your favorite restaurant, and you might make some trade-offs between a national brand and an own brand."
Compared to the last two years of stimulus-fueled retail spending, Cornell expects spending patterns to change. He said a lot about the consumer would be understood in the next "60, 90, 120 days" in adapting to the high inflation environment.
As part of the rapid recovery, fueled by trillions of dollars in monetary and fiscal aid, prices for cars, gas, food, and furniture rose sharply in 2021. As consumers increased spending, supply chains became snarled, and prices increased further.
In the new year, US inflation pressures show very little easing, and some economists predict the peak could be nearing. The high inflation problem has led rate markets to price in 4 rate hikes by December, with the first live meeting expected in March.
Many consumers have never seen anything like this because they weren't around in the 1970s and early 1980s of high inflation. It only took then-Fed Chair Paul Volcker to increase interest rates to double digits to tame inflation which sent the economy into a deep recession.
High inflation has put Biden on the spot ahead of midterms. The latest polling data shows the president's popularity sunk to a new low this week.
Consumers feel the pinch around them, from the supermarket to the gas station. Cornell's outlook for the consumer is gloomy, suggesting they might go in hibernation mode to weather the inflationary storm.