- A study found that cost of living continues to be the biggest worry among consumers.
- However, bargain shopping has not been seen as a priority among many consumer segments.
- Lower price sensitivity in consumers drives corporate profit margins.
Inflation remains a key concern for people in the US, and a new survey found that cost of living continues to be the biggest worry. At least 57% of participants said that high prices affected their personal finances, up from 50% last month, according to the University of Michigan's Surveys of Consumers.
However, rising economic uncertainty brought on by the US-Israeli war on Iran has not stopped people from spending. Profit margins continue to increase and corporate earnings are also rising. The reason? Consumers are not bargain shopping.
A recent research note from Goldman Sachs reflected these trends. The bank used two studies to highlight that firms have been raising price markups on their products, which is in line with how gross profit margins have been increasing.
"After-tax corporate profits as a share of value added have roughly doubled from about 5% in the late 1980s to over 10% recently," Goldman economists explained.
"Over the same period, U.S. firms have substantially raised markups — the amount by which prices exceed the marginal cost of producing goods and services," the note added.
This means what consumers are paying exceeds the cost of the product, as per TKer.co. There has been little pushback. Fewer people are bargain shopping. Goldman economists cited studies saying price sensitivity in consumers has been declining, due to rising incomes.
The research also highlights one more thing- wealthier people are less price sensitive than poorer ones, meaning higher-income households have increasingly driven spending.
The dynamic proves that people may not like higher prices, but often end up paying for costlier alternatives, driving spending, and in turn, profit margins.
In the University of Michigan's research, consumer sentiment fell to 48.8 points in May 2026 from 49.8 points the previous month. Year-ahead inflation expectations also rose to 4.8% from 4.7% in the time period. The current data substantially exceeds the 3.4% estimates recorded in February 2026 before the start of the US' war on Iran.
Consumers from lower-income groups and those without college degrees recorded particularly strong sentiment declines as these segments are more sensitive to hikes in the price of fuel and other essentials.
A major worry among consumers was that inflation will rise and transfer beyond fuel prices, even in the long run.
Long-run inflation expectations jumped from 3.5% in April to 3.9% in May, much higher than the range of 2.8% to 3.2% seen in 2024.
