Consumer Pushback Against Inflation Helps Ease Prices
Inflation has been a pressing concern for many Americans since the start of the pandemic. However, it seems that consumers are fighting back against rising prices, and their efforts are starting to pay off. Changes in consumer habits, such as shifting to store-brand items, shopping at discount stores, and buying fewer luxury goods, are helping to bring down inflation. This consumer pushback has been most evident in the food industry, where large companies have responded by slowing down their price increases.
While grocery prices are not expected to return to pre-pandemic levels, the milder increases in food prices should help cool overall inflation. In fact, inflation has already dropped significantly from its peak of 9.1% in 2022 to 3.1%. President Joe Biden has made public frustration with high prices a central issue in his bid for re-election. Despite the decline in inflation, many consumers are still unhappy with the persistently high prices.
Biden and left-leaning economists have criticized corporations for raising prices more than necessary to cover their own higher costs. The White House has also condemned “shrinkflation,” a tactic where companies reduce the amount of product in a package instead of raising the price. In a video released on Super Bowl Sunday, Biden called shrinkflation a “rip-off.”
The consumer pushback against high prices is seen by many economists as a positive sign that inflation will continue to ease. This is a stark contrast to the inflationary psychology that developed during the price spikes of the 1970s and early 1980s when consumers rushed to make purchases before prices rose further, perpetuating inflation.
One consumer who has taken a stand against high prices is Stuart Dryden, a commercial underwriter at a bank in Arlington, Virginia. Dryden noticed significant price disparities between name-brand products and their store-brand counterparts during a recent trip to his regular grocery store. For example, a 12-ounce tub of Kraft’s Philadelphia cream cheese costs $6.69, while the store brand is only $3.19. Dryden has started opting for private-label options, noting that the quality is the same, and the savings are substantial.
Companies like Kraft Heinz have faced declining sales as more consumers switch to cheaper brands. Kraft Heinz claims that its costs rose 3% in the final three months of last year but only raised its own prices by 1%. The company is making efforts to find efficiencies in its operations to offset further price increases.
Other consumer food and packaged goods companies, such as PepsiCo, Kimberly-Clark, and Procter & Gamble, raised their prices significantly in 2021 and 2022 to offset rising input costs. However, they have now realized that this strategy is no longer effective. Consumers have already spent the savings they accumulated during the pandemic, and lower-income consumers are struggling with credit card debt.
As a result, many companies are reevaluating their pricing strategies. PepsiCo executives have indicated that they will rein in price increases and focus on boosting sales. General Mills CEO Jeffrey Harmening has acknowledged that customers are increasingly seeking bargains. Even McDonald’s plans to highlight its lower-priced items to attract budget-conscious consumers.
Officials at the Federal Reserve believe that consumers’ growing reluctance to pay high prices will contribute to a steady decline in inflation. Companies across all industries are expected to impose smaller price increases this year compared to previous years. Surveys conducted by the Fed’s regional banks indicate that companies plan to raise prices by an average of about 3% this year, down from 5% in 2023 and as much as 7% to 9% in 2022.
These trends suggest that companies were already slowing down their price hikes before President Biden’s recent attacks on price gouging. Economist Claudia Sahm believes that consumers hold more power than the president in curbing inflation.
In conclusion, consumer pushback against high prices is playing a significant role in easing inflation. Changes in consumer habits, such as opting for store-brand items and shopping at discount stores, are forcing companies to slow down their price increases. While grocery prices may not return to pre-pandemic levels, the milder increases should help cool overall inflation. President Biden and left-leaning economists have criticized corporations for raising prices excessively, and the White House has condemned shrinkflation. The consumer pushback is seen as a positive sign that inflation will continue to ease, and companies are reevaluating their pricing strategies to attract budget-conscious consumers.
