(Bloomberg) — For years, Fridays at Beef ‘O’ Brady’s, a sprawling restaurant chain in the Southeast, meant one thing: the steak-and-shrimp special.

Chris Elliott, the Chief Executive Officer of Elliott Foods, saw that inflation was affecting consumers in January. After taking the $12.99 surf and turf dish from the specials, Elliott replaced it by a fish-and chips platter with a $9.99 pricetag. However, even with this change in pricing, traffic to the restaurant has been slowing over recent weeks.

“People are looking for deals; they’re getting hammered everywhere — at the gas station, at the grocery store,” said Elliott, who acknowledges that restaurants, including his own, have also been raising prices.

Lower-income Americans are shifting their spending habits one year after the inflation spiral has rocked America’s economy. They’re cutting back on more expensive items, ramping up on cheaper ones and forcing restaurants, grocery stores and retailers to rejigger their sales strategies. This represents a big break with 2021, where consumers, buoyed by pandemics and newly earned pay increases, continued spending at a fast pace despite the fact that inflation was at its highest point in four decades.

“Consumers are becoming more sensitive to price,” said Krishnakumar Davey, president of strategic analytics at IRI Worldwide, a provider of market research and data. “March is the turning point.”

Analysts and executives say that the drop in spending is greatest in families with lower incomes because inflation outweighs wage increases. The largest increase since July 1981 was 7.9% in food prices, which rose 7.9% from one year ago. The U.S. Inflation figures for March 2018 will be updated on Tuesday. While job gains and a jump in savings mean the pandemic-era shopping boom may not be completely over, it’s clearly slowing.

Bank of America data (NYSE:) show that card spending increased by only 4% for households earning less than $50,000 per year in March according to Bank of America. This is about one-third of the increase seen in cards spent by those making more than $125,000 each. 

According to the September Census Bureau report, more than one third of U.S. households earned less than $50,000 in 2020. This excludes government stimulus payments. This would mean that there are approximately 49 million households. Bloomberg Economics reports that the 18% spent on food and energy by those in the lowest quintile of income is compared to the 11% who are in the highest-income group.

This underscores the urgency of the Federal Reserve’s mission to restore price stability. The Governor Lael brainard noted this last week and said that families who feel stressed can make the switch to purchasing private-label goods. But for those already purchasing cheaper options, it won’t be as simple. Those shoppers “would have to either absorb the increase in cost or consume less,” she said.

Food industry workers are adapting. Denny’s Corp. is promoting a $6.99 all-you-can eat breakfast of pancakes, eggs and hash browns to entice customers who are “feeling the pinch at the gas pump,” Chief Brand Officer John Dillon said. In states with higher commodity and wage costs, the same breakfast menu costs $8.99. What about bacon? That’ll be an extra 99 cents.

The rising costs of restaurants and retail outlets are the main reason that the average U.S. household would have to spend $5,200 more this year (or about $433 per month) for the same consumption items, according to Bloomberg economists Andrew Husby & Anna Wong.

That doesn’t necessarily mean total consumer spending is poised to fall. In fact, economists are predicting an inflation-adjusted 3.1% gain after last year’s 7.9% jump, according to the median estimate compiled by Bloomberg. That’s still strong, and ahead of the average annual growth of 2.5% the U.S. posted from 2016 to 2019. 

Indeed, there’s still plenty of cash to be spent. Husby and Wong stated that the U.S. has $2.5 trillion more in savings than it had before the pandemic. Inflation pressures will only absorb about 25% of this.

Even at the lower end, “consumers in the bottom 50% of incomes and wealth have never had more excess net worth or liquid assets,” Tavis McCourt and other analysts at Raymond James Financial (NYSE:) Inc. said in a report. And with the job market booming, “we suspect it will take longer for consumers to show significant stress/slowing demand than one would normally expect,” they said.

Yet, consumers are looking for cheaper groceries. Foot traffic to dollar stores, particularly those that are located in Dollar General Corp According to Placer.ai data, the (NYSE :)., performance has been better than that of traditional retailers.

Big-Box Shift

Big-box retailers are also experiencing a shift in momentum. Target Corp. (NYSE:) trounced Walmart (NYSE:) Inc. in sales growth during the pandemic, and the company’s more upscale clientele positions it well for the future. According to Bloomberg Second Measure (which analyzes U.S. consumer transactions in order to determine revenue), Walmart’s sales growth has been more impressive over the past months. That suggests shoppers are increasingly drawn to Walmart’s mantra of everyday low prices.

IRI, the market research company, had predicted food inflation of 6 percent this year. Most of these increases would be in the second half. Now, it’s predicting a jump of between 8% and 11%. Private-label brand sales are experiencing a rebound due to the sharp increase. Spending on generic-brand food recently ticked up after slipping during the pandemic, IRI’s Davey said. 

With many unable to pay more, companies’ profits are likely to fall. Friendly’s Restaurants is giving away more discounts than in the past, and is also advertising big portions. CEO Craig Erlich said he hopes Friendly’s won’t have to raise prices this year. He’s simply not sure customers can keep up.

“That’s why we’re being mindful about not increasing prices significantly like we’ve seen out there,” he said. “It’s really a tough balance we face.”

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