EY ITEM Club special report on inflation

The outlook for consumer spending

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Inflation will continue to have a negative impact on household spending power, with utility and fuel prices expected to remain high and the benefits from cheap imports from emerging markets such as China set to tail off. The impact of the resulting subdued consumer spending will vary by sector, and companies need to understand these differences and the implications for their business – especially in cases where consumers might shift their behaviour and some goods and services could be squeezed out. Businesses should also take a close look at their cost structures, especially if a high proportion of their supplies or raw materials are sourced from overseas. Where this is the case, they may have to start to increase prices to customers eventually – but this will not be easy in a subdued environment for consumer spending. We will be publishing a special report on consumer spending in June which will examine this topic in more detail.

Ed Hudson, UK&I Consumer Products Sector Leader, EY