What Industries Are Hit Hardest by Inflation? Sectors, Explained

When inflation surges, consumers often expect the economy to respond by trimming demand for discretionary items, like travel and entertainment. However, certain industries most impacted by the current inflation period fall in different camps.

With the cost of living up 8.6 percent over the last year, here are the industries currently hit hardest by the ever-squeezing inflation that’s impacting consumers and businesses alike.

According to reports, the real estate and automotive markets are cooling in part due to inflation trimming consumer spending for high-price items. Of course, slimming housing purchases are due largely to the increase in mortgage rates making long-term amortization much costlier. However, the current state of inflation also plays a role.

As real estate companies like Redfin and Compass lay off employees en masse, housing demand is 17 percent below expectations. Redfin CEO Glenn Kelman wrote in a letter to employees, “We don’t have enough work for our agents and support staff.”

Meanwhile, the still-strong car market is beginning to decline, with sales down 4 percent. A mixture of high prices and inflation concerns is contributing to the dip, which could continue on its downward trajectory as we move toward a projected recession. “It seems like we’re reverting back more towards the mean,” says Ford Motor (F) CFO John Lawler.

It isn't just the high-price items feeling the heat. Small purchases are also struggling amid record-high inflation, which is the highest it has been since 1981.

Fast food restaurants such as McDonald’s are noticing smaller, lower-cost orders from low-income customers. This tends to be the first sign of a larger squeeze. The struggle might just be starting for brands in this space.

Restaurants may also be feeling inflation too, not just with customers but also with expenses. More restaurants and fast food chains are offering discounts to lure in customers, according to Barclays’ Jeffrey Bernstein.

Online and in-store retail purchases are falling in response to inflation. From Walmart (WMT) to Target (TGT), major retailers have already admitted to a squeeze in recent earnings reports. These stores have the capacity to shift inventory to focus more on essentials, though the pivot may not be seamless.

Even though the COVID-19 pandemic continues and inflation takes a toll on U.S. consumers, travel and entertainment are managing to keep up the pace so far. This could change if we enter recession territory, but it’s an interesting sign right now. Despite the increased cost of living, pricier discretionary spending remains a priority for Americans who have a strong urge to move past pandemic-induced social distancing and travel restrictions.

As a result, airlines, concerts, movies, and other experiential purchases haven't felt much of a squeeze yet. Even as the U.S. experiences a national average cost of regular gas of $4.981 per gallon, Americans are prioritizing these purchases all the same.