Mastercard: Housing Costs and Inflation Squeeze Consumer Spending

High inflation and interest rates are affecting groups in different ways. 

The Mastercard Economics Institute said in its Economic Outlook 2023, which was released Thursday (Dec. 8), that these and other factors in the global economy having a variety of impacts on countries, companies and consumers. 

For example, higher interest rates will cause the housing markets in different countries to run at different speeds. In Australia, Canada and some European countries, the high cost of mortgages is likely to squeeze discretionary consumer spending. Most Latin America countries, on the other hand, will be less affected. 

High inflation, similarly, will have different effects in 2023, the research found. In most parts of the world, consumers are “trading down” brands and stores in response to the higher cost of food and energy. However, in Australia, Canada and the United States, consumers continue to spend because they’re more willing to dip into their savings and because their spending has been buoyed by a tight labor market and stronger credit spending. 

In the face of high prices, regardless of country, higher income households are staying strong in discretionary spending while lower income households are more likely to pare back. While lower income households’ trend toward cutting back on things that are “nice to have” in favor of necessities may lessen if inflation recedes in 2023, the gap in spending habits that was heightened during the pandemic will persist, the Mastercard Economics Institute said. 

Companies, too, have been affected in different ways by these global economic factors. The research found that while larger companies can absorb these shocks by deploying their cash cushions, smaller companies that rely on bank funding may struggle. 

“An in-store and online presence has helped firms connect with customers they otherwise would not be able to reach, broadening brand awareness, diversifying and expanding product offerings and sales, and maintaining more flexible and targeted pricing structures,” the Mastercard Economic Institute said in the report.