Americans’ refusal to buy expensive products forced companies to cut prices and reduce inflation, economists say – HotNews.ro

The great wave of inflation in the last three years in the US seems to be coming to an end. And those who helped to reduce the inflation are the real American consumers, believe the economists named Associated Press.

Some of America’s biggest companies, from Amazon to Disney and Yum Brands, have said that their customers are increasingly looking for cheaper alternative products and services, or simply avoiding products that they consider it too expensive.

Americans have not reduced their consumption enough to cause an economic recession. Instead, economists noted, they returned to pre-pandemic practices, when most companies felt they could not raise prices much without losing customers.

“While inflation is coming down, prices are still high, and I think consumers have gotten to the point where they can’t take it anymore,” explained Tom Barkin, president Federal Reserve Bank of Richmond.

“And that’s what you want: High prices are the solution to the problem of high prices,” he said, using a paradox to explain the phenomenon.

The price sensitivity of American consumers, writes the Associated Press, thus helps to explain the decrease in inflation, which seems to be steadily falling towards the Reserve’s 2% target. Federal, ending a painful period.

In particular, Americans’ reluctance to pay more has forced companies to reduce price increases — or even cut them.

Reducing US inflation – factors and figures

Other factors also helped reduce inflation, including the unraveling of supply chain bottlenecks and the Fed’s high interest rates, which slowed sales of homes, cars and appliances and other interest-rate-sensitive purchases.

However, writes the Associated Press, the question remains whether Americans will reduce their spending so much that they will put the economy at risk.

Consumer spending currently accounts for more than two-thirds of economic activity. As there is evidence that the labor market is slowing down, a fall in spending could hurt the economy.

Such fears caused share prices to plummet a week ago, although markets have since recovered.

This week, the government will provide updated information on both inflation rates. On Wednesday, the consumer price index for July will be released. It is expected to show that prices – excluding volatile food and energy costs – rose just 3.2% from a year earlier.

That would be down from 3.3% in June and would be the lowest year-on-year inflation number since April 2021.

Americans’ spending habits

On Thursday, the government will report last month’s retail sales figure, which is expected to rise 0.3 percent from June. Such an increase would indicate that although Americans have become more cautious about money, they are still willing to spend it.

Many companies have noticed this.

“We’re seeing lower average retail prices right now as customers continue to bargain down on price when they can,” Amazon CEO Andrew Jassy said in a statement. Associated Press.

David Gibbs, CEO of Yum Brands, which owns Taco Bell, KFC and Pizza Hut, told investors that a more cost-conscious American consumer had dampened his companies’ sales, which fell 1 percent in the ‘ April-June quarter at stores open at least a year.

“Making sure we’re providing consumers with affordable options,” Gibbs said, “has been something we’ve been focusing on more since last year.”

Other companies cut prices directly. Dormify, an online bedroom retailer, offers comforters starting at $69, up from $99 a year ago.

Consumption remains stable

According to the Fed’s “Beige Book,” a collection of business reports from around the country published eight times a year, companies in nearly all of the Fed’s 12 regions reported similar experiences.

“Almost every region said retailers are reducing inventory or price-conscious shoppers are buying only essentials, cutting back on quality, buying less products or looking for the best deals,” the report said last month.

Most economists say that consumers are still spending enough to keep the economy afloat.

Barkin, president of the Federal Reserve Bank of Richmond, said most businesses in his region — which covers Virginia, West Virginia, Maryland and North and South Carolina — are reporting that demand remains strong. strong, at least at the right price.

“In my opinion, consumers are still spending, but they are choosing,” said Barkin.