Why inflation changes what—and how—people buy

Inflation doesn’t just raise prices. It rewires consumer logic, alters trust in value delivery, and exposes the fragility—or durability—of business models. While UK households are cutting back on meals out and delaying apparel purchases, Gulf shoppers are trading up in beauty and gifting categories. American consumers, meanwhile, are opting for fewer items but holding onto subscriptions and convenience. The implication for operators? Spending shifts are no longer just about cost pressure—they’re about strategic recalibration.

The latest research from Itay Goldstein underscores this shift. Inflation does not uniformly suppress demand; instead, it changes the shape of spending. Consumers move sideways, not just downmarket. They edit categories, delay purchases, or shift brands—not necessarily spend less in absolute terms. That subtlety matters deeply. Businesses that interpret inflation as an across-the-board demand cliff risk reacting with margin panic, slashing costs in categories where pricing power may still exist. The smarter strategy begins with segmentation—by market, by consumer confidence, and by perceived value elasticity.

Nowhere is this divergence more visible than between Western Europe and the Gulf states. In the UK, inflation has prompted what can only be described as demand suppression. According to ONS figures, food inflation peaked above 19% in 2023 before easing, but the psychological residue remains. Britons have pulled back sharply on discretionary spending—particularly in apparel, beauty, and travel. Even fast fashion players like Primark have felt pressure, prompting new loyalty schemes and “price lock” strategies on staple items.

Contrast this with Saudi Arabia and the UAE, where inflation remains muted due to fiscal buffers, subsidised fuel, and relatively strong wage floors for citizens. Gulf consumers are not just maintaining spend—they’re trading up in categories like personal care, electronics, and dining. Brands in Dubai Mall report higher average ticket sizes post-2022, even as footfall stabilises. This is not inflation denial. It is a function of structural insulation—fuel subsidies, low tax environments, and stable employment for core nationals—that allows sentiment to hold even as global prices fluctuate.

For operators, this divergence demands regional autonomy. Applying a uniform pricing strategy across UK, France, and the UAE ignores the fundamental truth: inflation is not just a cost event. It is a confidence event. The British consumer is behaving as though volatility will persist. The Gulf consumer believes stability is engineered. And that belief—more than CPI figures—determines basket size, upgrade appetite, and discount tolerance.

In the United States, the picture is even more nuanced. Consumers are not spending significantly less—they are spending differently. Goldstein’s analysis shows clear substitution effects: downshifting in brand, delaying repeat purchases, prioritising categories linked to convenience or mental wellness. Private-label grocery sales are up, but so is retention in app-based meal delivery and pet care.

This is a market that still carries pandemic liquidity, credit access, and employment buoyancy—but where real wages have not outpaced inflation. So consumers are deploying a new internal logic: keep the services that smooth life, cut the stuff that doesn’t. That’s why subscription services—once thought to be vulnerable—are surprisingly sticky. It’s also why apparel and homeware brands reliant on trend refresh cycles are underperforming.

The insight here is not just about product category. It’s about sequence logic. Consumers are not abandoning categories wholesale. They are pushing purchases into the future, changing the order in which they solve problems. Operators who understand this can lean into flexible fulfilment, delayed drop models, and modular price bands. Those who don’t will read slowing sell-through as a collapse—when it may be a reprioritisation.

One of the most misleading inflation narratives is the idea that pricing power vanishes uniformly. It doesn’t. What disappears is lazy pricing power—the kind that rides on inertia, not perceived value. Businesses that previously relied on category dominance or assumed loyalty are being outflanked by competitors who pair pricing discipline with brand intimacy.

Beauty and skincare offer a telling case. In MENA, prestige brands continue to command full-price purchases, especially during Ramadan and gifting seasons. But in Europe, even heritage players have had to introduce smaller formats, value packs, or bundle discounts. The divergence? Gulf markets associate beauty with social performance and reward cycles. European markets now see it as elective.

Luxury fashion tells a similar story. Brands like Hermès and Chanel—who limit discounting and tightly control inventory—have preserved pricing power even through multiple inflation waves. Mass premium players, meanwhile, are losing ground as consumers question the value-to-price ratio. The lesson? Pricing power isn’t about absolute price. It’s about trust in worth.

The smartest operators are not responding to inflation by discounting—they’re redesigning the value proposition. In the UK, that means multichannel grocers investing in private-label development that mimics premium SKUs at 30% lower price. In the UAE, it’s about offering add-on value: free delivery, loyalty perks, limited-time luxury experiences layered into everyday retail.

In the US, Amazon’s “Buy With Prime” expansion is a case in point. It’s less about cost cutting and more about platform extension—giving third-party merchants the ability to use Prime as a trust layer. This isn’t defensive pricing. It’s an offensive move: deepen ecosystem loyalty even as discretionary income tightens.

Retailers who rely purely on promotional levers will see diminishing returns. What inflation exposes is whether your business model earns its margin—or just extracts it through convenience and legacy. Pricing architecture must now account for emotional utility, perceived fairness, and situational confidence. Businesses that grasp this are building layered offers—standard + elevated + experience—rather than toggling between “on sale” and “not on sale.”

While some sectors freeze hiring or shelve product launches, others are accelerating. Gulf luxury retailers are expanding store count and investing in experiential formats. In Southeast Asia, FMCG players are launching sachet and micro-size variants to maintain frequency at lower ticket sizes. In India, direct-to-consumer (DTC) brands are testing hybrid retail partnerships—not just for sales, but for physical trust reinforcement in a volatile environment.

What these plays have in common is clarity. They are not waiting for “normal.” They are adjusting systems, formats, and pricing logic to meet the new volatility. That’s adaptation. And it outperforms defense.

One standout example is Saudi retailer Lifestyle, which has expanded not just in square footage but in category spread—from fragrances and décor to smart accessories. Their inflation response isn’t price-led—it’s variety-led. More occasions served, more value configurations offered. In doing so, they preserve both brand equity and consumer goodwill.

Inflation forces a foundational question: is your model margin-led, experience-led, or liquidity-led? Margin-led models (like fast fashion or discount retail) struggle when costs outpace volume. Experience-led models (like beauty services or health subscription platforms) can hold pricing longer, provided trust remains intact. Liquidity-led models (like BNPL or ad-subsidised platforms) face the most risk—because inflation pressures both users and partners.

What we are seeing globally is a gradual shift away from margin capture as a strategy, toward margin alignment. Businesses are recalibrating assortments, pricing ladders, and consumer narratives not to drive profit per item—but to sustain flow per segment.

That means operators need more than finance-led pricing. They need strategic pricing governance—integrating insights from consumer behavior, category maturity, and local sentiment. This is especially urgent in cross-market businesses, where importing discount culture from one market can erode pricing power in another.

Inflation is not the disruptor. It is the revealer. It exposes brittle pricing models, overextended product architectures, and poor segmentation strategies. It reveals which businesses understand their real value, and which were coasting on inertia.

Professor Goldstein’s insights reinforce this: consumer behavior under inflation is not irrational—it is adaptive. But businesses must also adapt, with equal precision. That means asking harder questions: Where is elasticity shifting? What are we protecting—volume, loyalty, or margin? Where must we localise, not just translate?

Because in the end, inflation doesn’t just change how people spend. It reveals what they’re willing to believe is worth paying for.