Americans pulling back from revenge spending, which could slow inflation

AFTER two years of spending heavily on vacations and other experiences that they were deprived of during pandemic lockdowns, Americans may be on the brink of pulling back – a cool-down that could help slow inflation.

The nation witnessed two years of red-hot “revenge spending,” the name economists and corporate executives gave to a spike in recreational spending that followed coronavirus lockdowns. As demand rose, so did prices for airfares, hotels and other sought-after services.

But many of those price categories are now cooling. Hotel prices have recently climbed much more slowly on a year-over-year basis, and airfares are flatlining. If that trend continues this summer, it could contribute to a slowdown in overall services inflation, something the Federal Reserve has been watching and waiting for.

“We see some slowing in so-called revenge categories,” said Yelena Shulyatyeva, senior US economist at BNP Paribas.

But Goldman Sachs analysts expect hotel prices and other recreation-related costs to have climbed in May, the start of the summer holiday season.

Omair Sharif, founder of the firm Inflation Insights, expects airfares and hotel costs to have added a bit to inflation in the May data before subtracting from it meaningfully in June and July. He does not expect hotels and domestic air travel to see the same sort of surge this summer that they experienced last year.

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“We’re just not getting the same kind of pop any longer,” he said. “Airfares have pretty much stalled out.”

Consumers are not only getting back to more normal living patterns, they may also be increasingly cautious as they face high costs after several years of rapid inflation – and as they worry that the Fed’s interest rate increases might soon push the economy into a recession. NYTIMES