How inflation affects seasonal spending patterns year-over-year

Holiday revenue up 8% year-over-year. But prices increased 6%. Real volume growth was only 2%. Inflation distorts year-over-year seasonal comparisons in ways that can mislead if not properly understood. When prices change significantly, comparing seasonal periods requires adjusting for inflation to see actual demand change.

Inflation affects both sides of e-commerce analytics: prices you charge and spending capacity your customers have. Understanding how inflation distorts seasonal patterns helps you interpret data correctly and set appropriate expectations.

How inflation distorts revenue comparisons

The basic math problem:

Nominal versus real growth

Nominal revenue growth includes both volume and price changes. Real growth isolates actual demand change. If prices rose 5% and revenue rose 5%, real growth is zero. You sold the same amount at higher prices.

Calculating real growth

Real growth ≈ Nominal growth - Inflation rate. This simplified calculation reveals whether volume actually increased. Revenue up 10% with 7% inflation means approximately 3% real growth.

Seasonal comparison implications

Comparing November 2024 to November 2023 with 6% intervening inflation means November 2024 needs to be 6% higher just to match last year in real terms. A 4% increase actually represents 2% real decline.

Different inflation rates by category

Inflation isn’t uniform across categories. Food inflation might be 10% while electronics inflation is 2%. Your specific product category’s inflation rate matters more than general inflation for your business.

How inflation affects customer behavior

Spending changes during inflation:

Reduced purchasing power

Customers’ dollars buy less during inflation. The same income covers fewer purchases. This particularly affects discretionary spending that gets cut when budgets tighten.

Trading down behavior

Customers might maintain purchase frequency but choose cheaper options. AOV might decline as customers select lower-priced alternatives. Unit sales might hold while revenue per unit falls.

Reduced purchase frequency

Customers might buy the same products but less often. Seasonal peaks might remain but with fewer transactions. The shape of seasonality persists but amplitude decreases.

Category prioritization shifts

Necessities get prioritized over discretionary items. Seasonal patterns might shift toward essential categories away from luxury categories. Gift spending might trade down during inflationary holidays.

Seasonal patterns that shift during inflation

Specific seasonal effects:

Holiday spending moderation

Holiday seasons often see restrained spending during inflation. Customers still celebrate but with tighter budgets. Holiday peak might be lower relative to baseline than in normal years.

Back-to-school necessity focus

Back-to-school spending concentrates on necessities during inflation. Discretionary school items (fashionable clothing, premium supplies) see reduced demand while essentials hold.

Summer discretionary compression

Summer discretionary spending (vacation items, outdoor recreation, leisure purchases) often compresses during inflation. Customers have less capacity for non-essential seasonal purchases.

Deal-seeking intensification

Promotional periods might see amplified response during inflation. Customers with constrained budgets wait for sales. Black Friday and other deal events might see relatively stronger performance than full-price periods.

Adjusting seasonal analysis for inflation

Practical approaches:

Calculate unit volume alongside revenue

Track units sold, not just revenue. Unit comparisons aren’t affected by your price changes (though they’re affected by customer budget changes). Units tell the demand story that revenue obscures.

Track average selling price separately

Monitor how your average selling price changes over time. ASP increases inflate revenue without demand increases. Separating ASP from volume reveals what’s really happening.

Apply inflation adjustment to comparisons

When presenting year-over-year comparisons, show both nominal and inflation-adjusted figures. Stakeholders need to understand that 8% growth during 6% inflation is different than 8% growth during 2% inflation.

Compare to category inflation, not general CPI

General CPI might not represent your category. Find category-specific inflation data for more accurate adjustment. Electronics deflation or food inflation might differ significantly from headline numbers.

Setting expectations during inflation

Appropriate forecasting:

Adjust targets for inflation reality

If inflation is 6%, flat nominal revenue means 6% real decline. Targets should account for inflation baseline. Growing revenue at inflation rate means maintaining position, not growing.

Expect compressed seasonal peaks

Inflationary periods often show muted seasonal amplitude. Budget-constrained customers might not increase holiday spending as much as normal. Reduce seasonal lift expectations during high inflation.

Watch for delayed purchasing

Customers might delay seasonal purchases hoping for sales or price drops. Seasonal timing might shift later as customers wait for better deals. Early-season purchasing might underperform while late-season recovers.

Prepare for value emphasis

Messaging emphasizing value, deals, and price competitiveness resonates more during inflation. Seasonal marketing should acknowledge budget concerns rather than ignoring economic reality.

Customer segment differences

Inflation affects segments differently:

Income-sensitive segments

Lower and middle-income customers show strongest inflation response. Spending cuts concentrate in discretionary categories. Seasonal patterns for these segments compress most during inflation.

Affluent segment resilience

Higher-income customers show more seasonal stability during inflation. Discretionary capacity persists. Luxury seasonal patterns might hold better than mass-market patterns.

Necessity versus discretionary buyers

Customers buying necessities maintain patterns. Customers buying discretionary items show behavior change. Your customer base composition affects how inflation impacts your seasonal patterns.

Deal-seeker segment growth

The deal-seeking customer segment often grows during inflation. More customers become deal-seekers. Promotional seasonal events might see segment shift toward price-focused buyers.

Long-term pattern effects

Multi-year implications:

Baseline reset after inflation normalizes

When inflation subsides, customer behavior doesn’t immediately return to pre-inflation patterns. Budget habits formed during inflation might persist. Seasonal patterns might take time to return to historical norms.

New normal emergence

Extended inflation might create new seasonal baselines. What was pre-inflation “normal” might not return. Historical seasonal benchmarks might need recalibration.

Deal dependency risk

Heavy promotional reliance during inflation might train customers to wait for deals. Post-inflation, customers might continue expecting deals during seasonal periods. Promotional patterns established during inflation can be difficult to reverse.

Frequently asked questions

Should I raise prices to match inflation?

Depends on competitive dynamics and customer price sensitivity. Passing inflation through maintains margins but might reduce volume. Absorbing inflation maintains volume but compresses margins. Most businesses do some of each.

How do I explain inflation-adjusted results to stakeholders?

Present both nominal and real figures. “Revenue increased 8% nominally, which represents approximately 3% real growth after adjusting for 5% category inflation.” Contextualizing results prevents misinterpretation.

Will seasonal patterns return to normal when inflation subsides?

Partially and gradually. Some behavior changes reverse quickly; others persist. Expect gradual normalization over 1-2 years after inflation stabilizes, not immediate return to historical patterns.

How should I adjust seasonal forecasts for inflation?

Build inflation assumptions explicitly into forecasts. Model both unit volume expectations (likely flat to down during inflation) and price/mix expectations (likely up with your pricing). Separate the components for clearer forecasting.