Consumer Pushback Helps Bring Down Inflation as Americans Shift Shopping Habits
Inflation has been a major concern for Americans since the start of the pandemic. Prices have remained stubbornly high, with an average increase of 19% compared to pre-pandemic levels. However, consumers are fighting back and changing their shopping habits, which is helping to bring down inflation.
One of the ways consumers are pushing back against high prices is by shifting away from name brands to store-brand items. In grocery stores, shoppers are opting for cheaper alternatives instead of their usual favorite brands. They are also turning to discount stores or simply buying fewer items like snacks or gourmet foods. This change in consumer behavior is forcing large food companies to respond by slowing down their price increases.
According to recent data, consumer resistance has led to a significant slowdown in price increases for food and consumer goods like paper towels and napkins. While grocery prices may not return to their pre-pandemic levels, the milder increases should help cool overall inflation, which has already dropped from a peak of 9.1% in 2022 to 3.1%.
Public frustration with high prices has become a central issue in President Joe Biden’s bid for re-election. Despite the decline in inflation, many consumers are still unhappy with the current prices. Biden and left-leaning economists argue that corporations raised prices more than necessary, leading to increased profits. The White House has also criticized “shrinkflation,” where companies reduce the amount of product instead of raising prices.
Consumer pushback against high prices is seen as a positive sign by economists, indicating that inflation should continue to ease. This is a stark contrast to the inflationary psychology that developed during the 1970s and early 1980s, where rising prices led consumers to accelerate their purchases, perpetuating inflation.
Gregory Daco, chief economist at EY, a consulting firm, believes that consumers’ resistance to higher prices is a positive development. He states, “That was the fear — that everybody would tolerate higher prices. I don’t think we’ve moved into a high inflation regime.” Consumers like Stuart Dryden, a commercial underwriter, are already making changes to their shopping habits. Dryden has started buying store-brand items instead of name brands and has noticed significant price differences. For example, a 12-ounce tub of Kraft’s Philadelphia cream cheese costs $6.69, while the store brand is just $3.19.
Large food companies, such as Kraft Heinz, have acknowledged the consumer pushback and are taking steps to mitigate further price increases. Kraft Heinz spokesperson Alex Abraham stated that the company is finding efficiencies in its factories to offset rising costs. However, sales for Kraft Heinz fell in the final three months of last year as more consumers opted for cheaper brands.
Consumers like Dryden are also taking other measures to save money, such as shopping at discount grocers and buying used cars instead of new ones. Lower-income consumers, in particular, are running up credit card debt and spending more cautiously.
Major consumer food and packaged goods companies, including PepsiCo, Kimberly-Clark, and Procter & Gamble, raised their prices significantly in 2021 and 2022. However, they have now realized that this strategy is no longer effective as consumers are no longer willing to pay higher prices. Many companies are now focusing on boosting sales rather than relying solely on price increases.
Officials at the Federal Reserve have cited consumers’ growing reluctance to pay high prices as a key reason why they expect inflation to fall back to their 2% annual target. Companies across all industries are expected to impose smaller price increases this year, indicating that they were already slowing down their price hikes before Biden’s recent attacks on price gouging.
In conclusion, consumer pushback against high prices is helping to bring down inflation in the United States. Americans are changing their shopping habits, opting for cheaper alternatives and buying fewer items. This resistance has led to a significant slowdown in price increases for food and consumer goods. While inflation may not return to pre-pandemic levels, the milder increases should help cool overall inflation. President Biden and economists view this consumer pushback as a positive development and expect inflation to continue to ease.
