The structural break is especially important for inflation. As consumers’ priorities and consumption patterns have shifted, their willingness to accept price increases for certain goods and services has changed.
In the 1970s, people were slow to adapt to the oil price shocks. People still had to drive to get to work. Last year, consumer oil demand fell more rapidly in the face of higher prices. The pandemic encouraged flexible working, and higher oil prices meant commuters cut back on driving in favor of a short stroll to their home office.
Conversely, so much time spent in close proximity with one’s family changed priorities. 2022 was the year when people desperately sought to go on holiday, so that they could spend time in close proximity with their families in a different location. Significant price increases for vacation-related spending were paid by consumers, when in previous years such inflation would have changed holiday plans. 2023 will be the year when we will find out how much of the increased and reduced sensitivity to price changes will endure.
Main contributor - Paul Donovan
Content is a product of the Chief Investment Office (CIO).
Original report - The price we pay, 6 January 2023.
