The Inflation Paradox and Why Shoppers Are Spending the Same, but Buying Less This Holiday Season

Consumer spending habits are normalizing to higher prices, but retailers must shift from simple discounting to offering genuine value to overcome mounting consumer financial strain.

Fresh data from Circana spotlights an interesting retail sales trend that is worth further exploration. The firm found that consumers are spending about the same amount for the five weeks ended Oct. 4 compared to the same period last year. But unit demand fell 2 percent in the same period.

Researchers at the firm said by segment, food and beverage was the only one to show a sales gain of 1 percent. Discretionary general merchandise experienced a 3 percent decline in sales dollars and a unit demand decrease of 6 percent.

Meanwhile, separate data from the National Retail Federation (NRF) reveals that, despite inflationary pricing, shoppers this year said they plan to spend an average of $890.49 per person on gifts, food and other related seasonal products. While the amount is 1.3% lower than last year, it represents the second-highest spending on record since the NRF has conducted the survey for the past 23 years.

What this shows is that shoppers are getting used to inflationary pricing. They’re buying less and spending more, and will not be hampered in their efforts to celebrate the holidays with purchases. In fact, 85% of consumers polled said they’re expecting higher prices this season due to tariffs. In turn, the NRF said consumers are more frugal and value-focused.

But this is not the whole picture. 

The primary challenge facing retailers and brands this holiday season stems from ongoing consumer financial strain, despite high employment levels. This strain is attributed to all-time high consumer debt and the virtual depletion of excess savings accumulated during the COVID-19 pandemic. According to the New York Federal Reserve, U.S. consumer debt reached $18.4 trillion at the end of the second quarter, which is up from $17.6 trillion in 2024 and $17.1 trillion in 2023. Meanwhile, excess savings peaked at $2.1 trillion in August of 2021 and has been draining ever since to support consumer spending since 2021. The San Francisco Federal Reserve expects savings to be drained by 2029. As a result, the strength of the U.S. labor market (buttressed by low unemployment rates and higher wage levels) is the sole support of consumer spending.

All of which has led to a significant shift in consumer behavior toward value-oriented shopping, evidenced by the outperformance of value-focused retailers such as Costco, Walmart and TJX compared to the broader retail sector. Although inflationary price points are a very significant driver of current higher sales figures (meaning higher dollar sales don’t necessarily reflect greater profitability or unit sales demand), consumers are demonstrably paying more for goods, further stretching their budgets.

This trend is also subtly present in categories such as home improvement, where Home Depot’s total sales growth of 4.9% in Q2 of 2025 — outpacing its comparable store sales growth of only 1.4% in this quarter. This suggests that higher average transaction values (fueled by inflationary price increases) were responsible for a substantial share of the sales growth numbers.

To entice these financially stretched yet still-spending consumers, retailers must focus on the value proposition rather than mere markdown-driven discounting that harms profits and even perceived value. The recommended strategy is to collaborate closely with vendors to develop product assortments that skew toward opening price points and genuine value.

This involves refining the “good, better, best” assortment to emphasize better-value items, reducing inventory and creating the perception of scarcity for slower-moving, higher-priced goods, while utilizing in-store and digital signage to clearly communicate the value message. The goal is to make the consumer feel the value — meaning better quality or uniqueness for the price — as even higher-income shoppers are increasingly prioritizing value as well as convenience. This is why we’re seeing Wal-Mart attracting an increased share of shoppers from households making more than $100,000.

Value has now transcended price. Welcome to the age of the new consumer.