Confidence takes a knock as consumers brace for cost of living squeeze

Rising inflation and energy price increases have dampened consumers’ confidence in January, but marketers are warned to “hold firm”.

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While the easing of Covid restrictions has come as a welcome relief, consumers are still not feeling confident about money as fears over surging inflation, rocketing fuel bills and the prospect of interest rate rises take hold.

As a result, GfK’s latest Consumer Confidence Barometer shows a four-point drop to the overall index score for January (-19), with all five measures sliding down and in negative territory.

With inflation racing ahead at 5.4% and nearly at a 30-year high, along with the fact people are bracing for gas and electricity price hikes in April, “it’s no surprise” consumer confidence has taken a knock this month, GfK’s client strategy director Joe Staton tells Marketing Week. “That’s two months in a row that confidence has declined.”

People’s view of the economy is especially bad this month, with consumers’ view of the past 12 months and the year ahead both dropping by eight points.

The measure for the general economic situation over the past year fell to -47 in January, while people’s expectations for the economy over the coming year dropped to -32.

While these scores are still in negative territory they have both improved compared to January 2021, when people’s view of the economy over the past 12 months stood at -67 and expectations for the following year stood at -44.

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The index measuring people’s personal finances over the past year decreased by one point to -6 this month, marginally better than the score of -8 recorded in 2021. People’s impression of their financial situation over the coming year has worsened since last year, however, having dropped by three points to -2 versus 2021’s score of 2.

Meanwhile, the major purchase index has dropped by four points to -10, although this is 14 points higher than it was in January last year.

“We don’t have an economy where people feel they can splurge, that’s for sure,” Staton says. “The Omicron Covid wave may have turned out to be less severe than the peak we saw as we went from 2020 into 2021, but now consumers have fresh worries on their minds in the form of the squeeze on household costs.

“At times like this, consumers reprioritise and many cut their spending, but marketers should hold firm. Consumer confidence will bounce back at some point and that means buying power will return, so it’s essential for marketing teams to continue investing in strong brands.”