Investing.com -- Consumer spending in the U.S. has faced shifts in early 2025, with rising food prices emerging as a critical concern for households, particularly those with lower incomes.
According to data from the Bank of America Institute, credit and debit card spending per household declined by 2.3% year-over-year in February, following a 1.9% rise in January.
While seasonal adjustments indicate a 0.3% month-over-month increase, the broader trend raises questions about how inflation in essential categories like food may impact overall consumer spending.
Grocery prices have been increasing at a faster pace in recent months, climbing 0.5% in January after a 0.3% rise in December—well above the 2024 monthly average increase of 0.14%.
This adds to a nearly 30% increase in grocery prices since 2019. Meat, poultry, and fish saw a 0.5% month-over-month increase, while fruit and vegetable prices declined slightly.
The sharp rise in essential food items is forcing households, particularly lower-income consumers, to adjust spending habits by shifting to value-oriented grocery stores and spreading purchases across multiple retailers.
Higher-income households continue to exhibit stronger spending patterns, supported by a combination of rising wages and financial asset growth.
In February, wage and salary growth for higher-income earners accelerated to 3.5% year-over-year, compared to 2.4% for lower-income earners.
Additionally, rising equity values throughout 2024 and early 2025 have likely reinforced spending among wealthier consumers, providing a buffer against inflationary pressures.
For lower- and middle-income households, however, financial strain is becoming more pronounced.
While many have relied on savings accumulated during the pandemic, those balances have been steadily declining, though they remain above inflation-adjusted 2019 levels.
Tax refunds have provided some relief, with average refund sizes up 4% year-over-year for lower-income households and 7% for middle- and higher-income households.
However, with only a quarter of tax filings completed by late February, the full impact of refunds remains uncertain.
Rising food prices are also reshaping consumer behavior. Historically, consumers have responded to grocery inflation by shopping more frequently but spending less per trip.
Recently, however, the pattern has reversed, with spending per transaction increasing even as the number of trips declines.
This suggests that consumers are becoming more selective but have fewer options to mitigate rising costs without cutting back on other expenses.
Restaurant spending, which had been a resilient category, showed signs of slowing in February. While services spending remained stable, restaurant expenditures declined, likely due to rising costs for food away from home.
Given that restaurant prices have been rising faster than grocery prices, consumers may be opting to eat at home more often.
If food prices continue to climb, households will likely make more pronounced trade-offs in their budgets, potentially pulling back on discretionary spending in entertainment, travel, and dining out.
For lower-income families, where groceries account for roughly 23% of post-tax income, these shifts could be particularly stark.
The extent to which food inflation affects broader consumer spending will depend on how long price increases persist and whether wage growth keeps pace.