Just ahead of the holiday season, Walmart had encouraging news for inflation-weary shoppers: Prices on food and other staples were falling instead of rising. The retail giant said if the trend continued, it would soon contend with deflation in some of those key household categories, which would be a welcome sight for consumers emerging from the worst price increases in decades.
But the retail giant backpedaled this week, saying higher prices on many grocery items and household staples like paper goods have stuck. “There is deflation in certain categories — the possibility overall still remains — but prices are more stable than where they were three months ago,” CFO John David Rainey told CNBC.
In recent weeks, corporate leaders have sung a similar tune — at a time when inflation is cooling but prices are still rising faster than the Federal Reserve would like. Home Depot said the prices of home improvement items have “settled” rather than fallen. Coca-Cola and the makers of other popular brands of snacks, sodas, and household essentials said their prices are still ticking higher than a year ago. While they’re planning for more modest price hikes, shoppers should not expect price cuts, either.
“If one looks at inflation over time, we very rarely get into periods of sustained deflation. That’s just not a consumer effect,” Coke CEO James Quincey said Feb. 13 on CNBC’s “Squawk on the Street.”
The latest government data backs that up: while the rate of price increase is dipping year over year, the latest inflation metric came in hotter than expected. The consumer price index, a broad measure used to track what shoppers pay for goods and services across the economy, rose 3.1% in January from the prior year.
Food prices climbed 2.6%, fueled by a 5.1% jump in prices for food away from home, a category that includes restaurant meals and vending machine purchases.
While prices broadly are still climbing, shoppers have seen relief in some areas. For instance, prices of consumer electronics, used cars, and some other categories of general merchandise have tumbled. Wages have also kept rising, softening the blow as some prices have stayed high.
Inflation vaulted to the top of the minds of shoppers, executives, and investors over the last two years as soaring prices stretched household budgets and forced shoppers to reevaluate where and how much they spend. Price hikes helped companies offset higher input costs and maintain growth — even as consumers bought less while they were forced to fork up more money. The Federal Reserve took on the challenging task of reining in rising prices without tipping the economy into a recession, slowing inflation, but shoppers have only felt so much relief.
The cost of everyday items topped Americans’ economic worries in a Pew Research Center survey conducted Jan. 16 to Jan. 21. Seventy-two percent of respondents said that they were “very” concerned about the price of food and consumer goods.
While deflation could offer consumers relief, it can be a tricky dynamic to navigate, too. In many cases, companies might opt to protect profits rather than pass on lower input costs to consumers. Otherwise, they risk shrinking sales and a falling stock price.
Plus, executives may not want to cut prices or say deflation is happening since investors could take it as a sign that a company’s brand or the economy as a whole has weakened.
“You rarely see prices go down on a uniform basis outside of recessions or deep recession,” said Gregory Daco, chief economist at EY.
However, consumers sometimes benefit from price “corrections,” he said. For example, airfares plunged during the pandemic and surged after it, but now have leveled out again.
So far, the unwinding of historic inflation has been uneven. Products like chicken or eggs have been more likely to see prices slashed inside the grocery store. Tyson said chicken prices fell 3.9% in its fiscal first quarter. Egg producer Cal-Maine Foods reported that the average price per dozen eggs was cut in half in the quarter ended Dec. 2 compared with the year-ago period when the price of eggs spiked. Unilever CFO Fernando Fernandez also called out price cuts for at-home ice cream, laundry, and skin cleansing bars on the company’s Feb. 8 conference call.
“We’ve seen deflation first in the commodity-oriented categories,” said CFRA analyst Arun Sundaram. “I think it will take some time before packaged food pricing comes down.”
But not all commodities have tumbled in price. Cocoa, sugar, and tomatoes have all shot up more recently, hurting companies like Kraft Heinz and Nestle. Chocolate maker Hershey said it raised prices slightly on some items earlier this month.
Though many input cost pressures for businesses have eased, expenses are climbing faster than before the unprecedented demand boom of 2021. Most companies are seeing costs up around 3%, still higher than pre-pandemic inflation of 1% to 2%, according to
