This past Memorial Day weekend welcomed the long overdue sequel to the 1986 hit movie Top Gun. The sequel, Top Gun: Maverick, carries forward the patriotic bravado of the original with a new class of elite pilots. Top Gun: Maverick grossed $156 million in domestic box office receipts1 beating the previous Memorial Day weekend’s champion, Pirates of the Caribbean: At World’s End. Top Gun: Maverick was slated to debut in 2020 yet was postponed twice due to COVID. The box office score certainly indicates a correct monetary decision but may have also offered foresight into changing spending habits.

Consumers in America and abroad are looking to stretch their wings (pardon the pun) and get back to normalized life. Normalization began to appear in Spring 2021 but was truncated by Delta and Omicron. This year is accompanied by a similar shift to leisure but with a notable exception… COVID strains do not seem to be dampening plans.

Not too long ago, a return to movie theaters was questioned as a relic of the past. The reasoning was, “why risk infection with the advent of streaming videos and cheap home popcorn to boot?” So, a return to theaters offers an insight into consumer psyche. First, experiences, entertainment and leisure may be trumping the accumulation of stuff. Second, COVID variants are now accepted as a part of life, just like the regular flu or common cold. Hence, staying home is no longer in a consumer’s vocabulary.

In the near-term, the spending shift may be beneficial to the inflation picture. With less demand for products and stuff, there is a lessened strain on manufacturing, supply chains and logistics which was driving much of the inflationary picture. Interestingly, data is beginning to show these items are being improved. Reporting of 100 cargo ships off the coast of Los Angeles seem to have disappeared to only a fraction waiting to unload. Car dealerships (new and used) are beginning to see their lots with unsold vehicles. Shelves in stores are slowly filling (except for baby formula for some reason).

The Federal Reserve (Fed) may be ready to take an unwarranted victory lap citing rate increases, brought inflation under control. However, it is widely recognized Fed rate raises typically take 6-12 months to be impactful. So, the Fed performing a celebratory fly-by would be unwarranted since the Fed began rate raises on March 16th. The real answer is shifting consumer spending helped moderate inflation.

Further, the shelter component has begun to wane. Shelter is a large part of the inflation calculation and sensitive to mortgage rates. Rising mortgage rates would result in a smoldering housing market. In fact, mortgage applications have been falling since late January2. The housing market is simply following its natural pattern of higher rates causing reduced demand and will ultimately lead to lower or stable housing prices. Lower prices will likely be reflected in more muted inflation in the coming months.

It took a little longer than anticipated, but signs of moderating inflation have now entered the picture. The primary catalyst is shifting consumer demand. The old adage that the cure of high prices, is high prices seems to ring true. We are not out of the woods yet as energy policy (U.S. and global) and the Russian conflict are imposing widespread inflationary burdens.