When faced with inflation, what spending do households cut first?

(AFP) – Barbershop appointment indefinitely postponed, Netflix subscription terminated, shopping list reduced to a bare minimum: Inflation-weakened households face daily arbitrage as they try to balance their budget, with expenses inevitably rising.

In May, inflation picked up even more, surpassing the 5% mark for the first time since 1985, and “unlike in the 1970s and 1980s, many consumers are not used to this phenomenon,” said Jeremy Ducrot, an economist at La Finance pour. us.

Another feature, he says, is: “We don’t know how long this will last” and “there is a lot of heterogeneity, for example, between energy prices, which are skyrocketing, and food prices, which are rising, but less rapidly.”

For the middle classes, whose share of the budget dedicated to limited expenses (food, rent, energy, daily travel, etc.) is lower than for the most unreliable, the first arbitrages are held at the secondary poles.

“There is a larger decline in hygiene/beauty, such as the hairdresser and beautician, and we are running out of a tube of toothpaste,” notes Sandra Hoybian, CEO of the Research Center for the Study and Observation of Living Conditions (Credoc).

Leisure, leisure, restaurant, furnishings travel: in the face of uncertainty, “we are reducing the purchase of pleasures, and in households that have already accumulated during the health crisis (Covid), we are increasing precautionary savings,” she adds.

If consumers are no longer accustomed to periods of inflation, Covid restrictions have formed new habits, keeping spending on clothing/hygiene/beauty or cultural events low.

And, novelty in an inflationary environment, some digital subscriptions accepted during the crisis may be discontinued.

Netflix cites inflation as one of the factors behind its subscription in the first quarter. According to a recent study by the Nielsen Institute, 44% of French households that are now paying attention to their spending have limited their budget for “leisure at home”.

– “Elephant” housing –

The first reflex to have when budgets are weighed down by inflation, according to La Finance pour tous, is to “get three bank statements” and look for duplicates, for example in insurance, to sort it out.

But at a significant cost, it is impossible to refuse, especially for the most unreliable, who must find an alternative.

For groceries (consumption down 1.1% in April according to INSEE), the switch to private labels or even first prices is a reflex — currently used by 25% of vulnerable households — although their prices are rising proportionately more, according to Nielsen Institute. .

Postponing is even easier today, as discount distributors like Lidl or Aldi have improved their image: “they report the quality of fresh produce, they’ve updated their stores, they’ve launched loyalty programs, and they’re staying attractive with appliance promotional programs.” Nicolas Léger, Analytical Director at Nielsen.

A more recent phenomenon, the move away from organic products (sales down 6.3% year-to-date), the price of which he says has always been a “barrier” to consumption, is exacerbated by the inflationary context.

As for energy, consumption of which jumped in April due to temperatures, there is limited room for maneuver. On a national scale, lowering heating by a few degrees lowers the bill, but on a household scale, higher prices quickly offset the savings.

“Some environmental gestures that also reduce costs are not available to everyone,” says Jeremy Ducrot, despite subsidies to replace a boiler or a car. It’s the same with fuel: “We can slow down, but we always have to refuel.”

On these latest budget lines, the government is setting up targeted aid (inflation compensation, tariff shield, gas station cut), but the “elephant that will come into the room” with no wiggle room, according to Sandra Hoybian, is housing, “which has been growing for 20 years and will not avoid inflation in the coming months.