People are scaling back their spending habits and changing attitudes toward saving and borrowing after a year and a half of high inflation, according to a special report from the University of Michigan’s Surveys of Consumers.

Consumers reported an all-time low of consumer sentiment this summer. By October 2022, year-ahead inflation expectations were 5% and long-run expectations were 2.9%. Both measures are considerably elevated and remain above the Federal Reserve’s target of 2% inflation, according to Joanne Hsu, director of the surveys at the U-M Institute for Social Research.

To form this special report, the surveys asked consumers about current and future changes in their attitudes and spending in August, September and October of this year.

“Throughout 2022, consumers have expressed how inflation has eroded their living standards, closely tracking the proliferation of negative news they hear about inflation,” Hsu said. “We can now see the effects on behavior as well: a majority of consumers have adjusted to their expectation of continued inflation by adjusting their spending.”

Some questions asked of consumers were also collected in 1979 and 1981, providing some historical context, though by then consumers had already adjusted to a decade of high inflation, Hsu said.

Specifically, the special report found:

• About 60% of consumers have already scaled back their spending in response to inflation, and even more consumers plan spending cuts in the year ahead.
• Consumers who scale back their spending have lower sentiment and higher inflation expectations.
• Consumers are more reluctant to borrow for major purchases than to dissave, which suggests that consumers may pull back their spending even more as they draw down their savings.
• Advance buying motives—a component of inflationary psychology in which consumers make large purchases no in order to avoid price increases in the future—do not yet appear to be widespread, but are favored by a sizable minority of consumers and remain a risk for the future.
• Consumers report more awareness of news on inflation than in the 1970s, which may influence their attitudes.