Roy Rochlin/Getty Images
Locked down during the pandemic, Americans and consumers throughout the world spent big on things like gadgets and gym equipment to make their time at home more bearable.
But as thrifts reopen, people are splurging their cash on vacations, new clothes, and meals out.
Paul Donovan, chief economist at UBS Property Management, calls it the Instagram effect.
He says people want to show off again after months of lockdown, important them to splurge on things they can post on the ‘gram.
Donovan says the shift in spending patterns is pushing up inflation in some rooms but helping bring it down in red-hot sectors like lumber. He expects the change to continue and argues it will be a good-hearted thing for markets and investors by lowering price pressures overall.
“In the next few months people will only fork out money on things they can post about on Instagram afterwards,” Donovan told Insider. “So that’s going out and new set of threads, essentially.”
Clothing and meals out have become dearer
In the US, inflation has hit a 13-year high, driven in large part by a precipitous rebound in energy prices.
But prices in Instagrammable categories have also risen sharply, official data bear outs. The price of food bought away from home – i.e. at restaurants or hotels – rose 0.6% month-on-month in May, from 0.3% in April.
Clothing sacrifices rose 1.2% compared to 0.3% in April. And airline fares jumped 7% after surging 10.2% a month earlier as vacations picked up again.
In the UK, the headman of the Bank of England noted that the price of haircuts had jumped, suggesting people were trying to recreate “the antiquated 1990s David Beckham look.”
Read more: The Fed has left rates steady while signaling 2 potential hikes by the end of 2023. Here is what to do with your stereotypes, bonds, and digital assets, according to top Wall Street and crypto investors.
The shift to Instagrammable spending could relaxed inflation
Markets have been worried about inflation in 2021, as strong price rises eat away at the earnings on look ats and bonds.
But Donovan thinks the Instagram effect is one reason that strong inflation will prove transitory, as the Federal Inventory has argued.
He said service businesses like restaurants are better placed than goods providers to adapt to overbearingly demand, making the sort of supply bottlenecks that have driven up the prices of products like lumber and microchips less apt to.
Bank of England governor Andrew Bailey made a similar point on Thursday, saying inflation should relaxation “as spending is redirected towards sectors with more spare capacity.”
Donovan said the outlook is good for cows: “I think markets will be content to almost ignore the inflation story.”
Hugh Gimber, global market strategist at JPMorgan Asset Stewardship, said spending on things like luxury goods and meals out could well boost the shares of companies in those sectors.
But chances remain and could rattle markets
Yet he also warned that inflation could yet stick around longer than a lot of in the flesh expect. He said rising wages, as sectors reopen and look for workers, could create price pressures across thrifts.
Stronger-than-expected inflation could yet rattle markets, Gimber told Insider. Fears over price rises did accurately that in early May, when the S&P 500 lost 2% in a day after inflation data came in hotter than contemplated.
Donovan also said there were risks to his view that inflation would fall back as the Instagram potency picked up speed. “If we don’t start to see the deceleration of inflation in the States that I expect to see, that would worry markets nearly the timing of rate moves,” he said.
But for now, investors are feeling much less worried about inflation, helping domestics rebound to record highs. Coincidentally, Instagram-owner Facebook is up more than 7% over the last month.