"One in three families have canceled vacation plans as a result of higher inflation," Michael Arone, chief investment strategist of U.S. SPDR at State Street Global Advisors, said on Yahoo Finance Live (video above). "And about half of those surveyed also have changed their buying behavior, meaning buying different goods, cheaper prices, or doing less in terms of entertainment."
The latest data showed that inflation slightly ticked down to 8.5% year over year in July, offering relief for many Americans who have been forced to curb their spending due to higher prices. But it's still much higher than the Fed's target range of roughly 2%.
During his speech at the Jackson Hole Economic Symposium on Friday, Federal Reserve Chair Jerome Powell acknowledged that consumers would likely continue to feel the effects of inflation until the central bank brings inflation back down to 2%.
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses," Powell said. "These are the unfortunate costs of reducing inflation."
'The economic picture continues to be a bit cloudy'
The rise in inflation has also instilled fear in those participating in the stock market.
The State Street report found that 51% of investors surveyed curtailed discretionary spending (which includes dining out and entertainment), 35% spent less on vacations or delayed a major purchase, and 29% cut back on essential expenses like groceries and gasoline.
Additionally, 47% of investors agreed that inflation was causing them stress and anxiety and 49% still don't think inflation has peaked yet.
"What's happening is that the economic picture continues to be a bit cloudy," Arone said. "What it's telling me is that the economic data continues to be pretty complicated."
Arone noted, for instance, that the labor market "continues to show signs of strength."
Yet, in his Jackson Hole speech, Powell signaled that while the labor market was strong, it is also "clearly out of balance" and one of the reasons why the Fed will be shifting its policy stance to ensure inflation reaches its target goal.
In the meantime, the State Street survey indicated a generational divide in terms of concern over the economic outlook, with 76% of Gen Xers expressing concern versus 60% of millennials and 65% of Baby Boomers.
Similarly, 88% of Gen Xers indicated concern about rising inflation versus 72% of millennials and 70% of Baby Boomers.
Although interest rate-sensitive parts of the market such as housing are showing signs of weakness, Arone argued there are other data points that "suggest the economy is in reasonable shape."
"Inflation is finally rolling over," Arone said. "What it suggests is that the economy is trying to find a firm footing between a cyclical slowdown and a recession. We're not at those recession levels just yet, but we're probably headed in that direction."
Ethan Kimball is a writer for Yahoo Finance.