Investors are worried about a potential recession, but you have said that discretionary retail spending is already in a recession. How do you expect it to unfold?

It seems that in the past few months, we've seen a consumer-discretionary recession. The consumer still has money, but you don't need a new big-screen TV if you bought one during the Covid pandemic, or new outerwear if you bought a new coat last year as people started going out again.

We are seeing consumers return to prepandemic behaviors -- things we were talking about 10 years ago, such as shopping close to need, shopping during events, looking for promotions. The problem, which has been consistent but sequentially improving, is that inventories can't adjust that fast. Also, when stimulus dollars were flowing, consumers weren't that price-sensitive because they had money in their pockets. Now the sensitivity has increased.

Is inflation now semipermanent?
I think so. Prices will stick, and there might be disinflation, but there won't be deflation. We are at a new level because of labor; we will see some relief in freight and the average unit cost of some ingredients, but labor costs will be sticky. Apparel has been problematic, because the price of shirts basically has stayed the same for a decade. A little bit of inflation is healthy, but this level has been wreaking havoc in demand trends. Your food cost at Walmart was up by a midteens percentage [in recent months]. That's a good indicator of how the whole country is faring.

Eoin Treacy's view

Penny pinching has arrived in the consumer sector and that is about the clearest sign of reduced spending power we can observe. Unemployment has not yet started to tick higher, so for now consumers do not have to make big spending adjustments. However, tightening monetary conditions continue to tighten the noose so caution is warranted.