Santa Claus and Inflation - Is Christmas Canceled?

Although you’ve done everything in your power to secure your spot on the “Nice List”, it may not make a difference this year. Santa Claus has run out of money and inflation may steal Christmas. In fact, according to the November IDB/TIPP Economic Optimism Index, a leading national poll of consumer confidence, 71% of survey respondents said they would be reducing their holiday-related spending this year.  

So, is Christmas really canceled? Read on to learn more about inflation and how it may be impacting Santa Claus coming to town this year. 

What is inflation?

In the simplest terms, inflation is the rate of increase in prices over a given period of time. The most well-known indicator of inflation is the Consumer Price Index (CPI), which measures the percentage change in the price of a basket of goods and services consumed by households. While the Federal Reserve has not established an acceptable inflation target, policymakers in the United States generally agree that an acceptable inflation rate is at or below 2%. And according to the CPI, consumer prices rose 8.2% in 2022 through September, which was much higher than economists had expected. 

To control inflation, governments can enact a handful of tactics, including raising interest rates. Increasing interest rates makes it more expensive to borrow money, so people spend less, and demand is reduced. As demand drops, so do prices. As of November 2, 2022, the current Federal Reserve interest rate is 3.75% - 4.0%, pushing borrowing costs to a 15-year high.

What is causing inflation this year?

You may be asking yourself, “What is driving inflation so high this year?” And the answer, it seems, is everything, and it can nearly all be linked to the COVID-19 pandemic. The pandemic caused factories worldwide to shut down and led to supply chain disruptions. This impacted everything from essentials like houses and food to new and used cars. The pandemic also caused consumers to shift from purchasing services to purchasing goods, and this led to increased demand that couldn’t be fulfilled due to supply chain issues. Additionally, Russia’s invasion of Ukraine caused increases in oil prices and other commodities like wheat. The added costs at every step from production to sale lead to price increases for consumers. 

So, is Santa Claus cutting back this year?

Unfortunately, inflation may be a top concern for holiday shoppers this year. In fact, according to a Jungle Scout survey,

• 55% of consumers said inflation will directly affect their holiday spending this year. Of those whose spending will be impacted:
  
• 54% will likely spend less on gifts per person,
  
• 47% foresee purchasing discounted products,
  
• 38% anticipate reducing the number of people they’re purchasing gifts for,
  
• 34% expect to reduce holiday activities and travel.

This holiday season, you can still expect to see the Christmas cheer, but it may be more understated. Christmas isn’t canceled, and Santa Claus will likely still come to town. It may just look a little different this year.