"What we've seen is that the consumer has accepted these price increases but inflation is not pulling back," said Ashish Sinha, portfolio manager at Gabelli. "So as inflation increases, that raises questions on demand elasticity."
Low-income households have been hit hard by inflation because a high proportion of that income is spent on essential items ranging from food to fuel and accommodation.
In contrast, middle- and high-income households were able to build up substantial savings during the pandemic as restrictions made everything from foreign holidays to eating out more difficult. While some of these savings have since been eroded by inflation, they have more flexibility to keep spending.
That has resulted in booming demand for luxury items such as sports cars and designer handbags.
LVMH, the world's biggest luxury goods firm, on Monday reported better than expected second-quarter sales, with robust U.S. growth and a recovery in Europe offsetting declining revenue in Asia.
"We're growing double digit with most of our brands so we cannot complain about European customers. On top of that we've got significant touristic activities in Europe," said LVMH financial chief Jean Jacques Guiony.
American tourists vacationing in London have been spending more because of the strong dollar, analysts say.
For now, the increased prosperity of affluent consumers is offsetting the hit to revenues from lower earners spending less.
"It's one of those moments where investors are looking at these results in Europe and thinking ... business has been resilient," said Danni Hewson, financial analyst at AJ Bell.
