How Much Will Inflation Really Influence Spending This Holiday Season?

Almost everything is more expensive these days: Gas prices have reached record highs. Grocery prices are through the roof. And as we approach the holiday season, all that inflation leaves little money for extras like entertainment, travel, or shopping — or does it? 

For the scoop on how inflation will influence the holidays, we checked in with UNLV hospitality professor, tourism researcher, and consumer behavior expert Amanda Belarmino. And her perspective just might infuse folks with a dose of much-needed happy holiday cheer, as she predicts the anticipated drop in spending on holiday travel and gift giving may be counterbalanced by spending sprees influenced by pent-up pandemic demand.

“So far, spending patterns aren’t following the previous logical patterns for inflation responses,” Belarmino said, adding that analysts are starting to observe the emergence of a penchant for unique experiential gifts over tangible goods this year. “The holiday shopping season should really help us understand how consumers are responding to inflation and potential recession issues.”

And the winter economic picture might be shaping up even better for Las Vegas than other parts of the country. 

According to AAA’s 2022 holiday forecast, Thanksgiving travel is expected to be close to pre-pandemic levels — with Las Vegas projected as the third most popular destination after Disney sites in California and Florida.

“We’re going to see some interesting trends,” Belarmino said. “Especially for Las Vegas, we’re in a good position for holidays going forward because we’ve reinvented ourselves from being a gaming destination to an entertainment destination. And I think that has helped us to capture some holiday market that we never had before the pandemic. People who were only coming to Las Vegas for New Year’s Eve are now adding Thanksgiving and Christmas to their list.”

Read on for details on consumers’ and retailers’ responses to the double whammy of the pandemic and inflation on the 2022 holiday season  — including the influence on advertising, which gifts are expected to be most popular, and the financial forecast as we head into 2023.

How has inflation impacted holiday season spending?

We’ve seen some things that appear to be counterintuitive. Normally, when you have high inflation you have an overall reduction in spending — but we don’t seem to see that in terms of travel. We have seen a reduction in some spending in the retail and restaurant sectors. Shoppers are just being more creative than we would normally see. 

For example, tips across the U.S. are down while dining out is not necessarily down. Because we’ve seen such record-high grocery prices (and perhaps many of us are still tired of cooking during the pandemic!), I expect that we’re going to see more people dining out for Thanksgiving — which has been a trend in recent years. On the other hand, the national tip percentage had gone up to over 18% and now it’s back down to around 15% — which isn’t a huge reduction but if you’re a server, 3% of your income is pretty impactful. There’s a lot of research on what influences tipping and usually it’s the empathy for the service provider overall — and generally, I think tipping is that first sign towards reduced spending. 

Historically, consumers have seemed to respond differently to dining out during different eras. During the Great Recession, we saw a shift from sit-down restaurants to fast casual restaurants, where tipping isn’t expected as a normal part of the bill. Conversely, when we look at economic downturns in the 90s, people just stopped going out and made food at home. At other times in the past, tipping has gone down because there’s been less demand. But this time, it isn’t a decrease in demand that we’re seeing — it’s the tipping behavior.

What does that mean for travel?

When it comes to travel, Las Vegas is interesting because usually we’re the first hit and the last to recover. But travel in general — and travel in Las Vegas, in particular — has been up. Las Vegas is doing historical numbers on average daily rates for hotel rooms and on gaming, so there’s nothing to indicate that consumers are spending less when they come here. For Thanksgiving in both 2020 and 2021 people traveled here, and — with more buffets open this year — I expect that trend to continue in 2022. I think consumers are making more price-value decisions: Even though you’re paying a bit more to dine out, if you don’t have to cook and clean, it cancels out. 

It’s possible that gaming is up because people may be engaging in riskier behavior because of the pandemic. Similarly, the pandemic may have caused pent-up demand for people to travel. It’s also possible that people are choosing domestic travel over international travel. So while Las Vegas is making a lot of money, maybe consumers are in fact saving money on their trips here.

What do reductions in spending mean for holiday gifts and entertainment? 

Shoppers seem to be spending less money on at-home entertainment, and spending more money on experiences and things outside of the home. We see that with some surprising declines in streaming services. People are canceling their streaming, and in fact two movies this month — Spirited on Apple TV and the second Knives Out film on Netflix — are both being released in theaters because they don’t think that they can recoup that money without having a theatrical release. This is a huge change in consumer behavior from what we’ve seen in the last few years.

Industry observers think that holiday shopping is going to be impacted by these changes. I’ve heard discussions that people are going to be giving travel gift cards and travel experiences rather than goods, or that they’re going to be giving things related to helping with household items like gift cards for grocery stores, gas, and food subscription services.

Will these new gift-giving trends impact the kinds of sales that retailers roll out?

I think so. In the past, the trend during weird, uncertain economic times would be to see sales before Christmas — price reductions for Black Friday and Cyber Monday — and then prices start creeping back up as we get into December. We might not see that moving forward.

But I think retailers are expecting a slower season because there are a lot of stores that have historically been open on Thanksgiving — for example, Target and Kohl’s — that will be closed this year.   

Why do you think consumers are behaving more “creatively”?

I think it’s uncertainty about the macroeconomic environment and general unease about world events.

We all have this shared trauma from the pandemic. We were all forced to stay at home, forced to not do things. And I think as a reaction to that people are trying to engage in activities they weren’t able to do before. There’s also still uncertainty related to the virus. The U.S. is probably more post-pandemic than some countries, especially in Asia. We’ve pretty much gone back to normal. But I think there’s still that lingering fear of, “What if something happened again? So let me eat, drink, and be merry today because tomorrow you may be quarantined again.” I think people are still reacting to that and craving normalcy and new experiences.

Another thing is that the pandemic led to a big increase in the number of people working remotely. If you’re working from home, then you are saving money by not paying for gas to go to work, by not purchasing food out, and by not making all the little expenditures that we don’t think about when we go to work. Also, if you’re at home all the time, then you don’t want to be at home all the time and perhaps you miss the social interaction that you would traditionally get at work. When you don’t have those interactions, then you have to find a way to create them.

Have the pandemic and inflation influenced how retailers advertise?

One thing I’ve noticed since the pandemic is a difference in ads for at-home services. Travel and dining ads appear to be replacing those for Peloton or the streaming services. At the same time, I don’t think we’ve seen a response by some advertisers to inflation. For example, I’m still seeing those “buy someone a car for Christmas” ads. 

The bottom line: We’re going to  see changes in what consumers do during the holidays, but I don’t know that we can accurately predict whether there’s going to be an overall change in  how much people shop. I don’t know that we can definitively say it’s going to be a socks-and-underwear kind of Christmas, or if buyers will focus more on gift cards for travel. All we can say is that it’s going to be a little bit different. All of the retailers are indicating that they think it’s going to be a softer season.

Do you foresee these changing consumer trends lasting into 2023?

I think the behavior we’re seeing now and through the holidays may not be indicative of what we’re going to see if we continue to have high inflation. People do have a tendency to splurge during the holidays, to put things on their credit cards — things that they don’t tend to do otherwise — so we might see that people are beginning to make a long-term trade off of doing things now and having to tighten their belts more at the beginning of next year.

In my opinion, the economic indicators are that we’re watching a slow-motion recession. We’re seeing things happen but everything is responding in a lag. So unless something changes, I think that we’ll see more traditional responses in 2023.