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Inflation Prompting Consumer Grocery Pullback, Retailers To Discount Big Items

Consumers are spending $460 more a month on goods and services due to inflation.

Consumers are pulling back on grocery spending at the same time that major retailers are expecting a glut of goods to flood their warehouses, prompting steep discounts on a variety of products.

Kroger CEO Rodney McMullen said Thursday during an earnings call that rising inflation has altered consumer buying habits, forcing shoppers to cut back and switch to less expensive store-branded merchandise, CNN reported.

Food prices rose nearly 12%, the largest 12-month increase since 1979, with staples like eggs up 32%, milk up 16% and poultry up 16.6%. This is forcing the average U.S. household to spend $460 more every month on goods and services compared to 2021, CNN reported.

“Rising inflation has consumers rethinking their shopping and eating habits. We are seeing different shopping behaviors based on how individual customers are experiencing the current inflationary environment,” McMullen said.

While inflation has puffed up the prices of core grocery items, retail analysts expect big chains like Walmart, Target and Macy's to slash the prices on things like patio furniture and sweatpants this summer as orders made as long as two years ago finally arrive on shelves, The Wall Street Journal reported.

Many of these products were in high demand while Americans were in lockdown during the height of the pandemic. Now that restrictions have been largely lifted across the U.S., consumers are spending more on eating out, going to concerts and traveling, according to the WSJ. That behavior shift will force retailers to discount big-ticket items like furniture and appliances, items that consume too much space inside warehouses to stay for extended periods.

Retailers like The Gap, which produce their own line of clothing and décor, also may slash prices to move goods off their shelves since they cannot pass costs on to other parties, Moody's Investors Service Vice President Mickey Chadha told the WSJ.

“There are going to be discounts like you've never seen before,” Chadha said to the WSJ.

These changing consumer behaviors could create volatility for the grocery-anchored retail sector, which has remained one of the industry's most stable segments throughout the pandemic. Grocery-anchored properties have become a highly sought-after investment target, recording the second-highest-ever sales volume last year at $13.3B, according to JLL.