WASHINGTON (AP) — Inflation has changed the way many Americans shop. These changes in consumption habits are currently contributing to curbing inflation.
Fed up with prices remaining on average about 19% above pre-pandemic prices, consumers are fighting back. Grocery stores are shifting from name-brand to store-brand items, switching to discount stores, or simply buying fewer items like snacks and gourmet foods.
More Americans are also buying used cars instead of new, forcing some dealers to supply cars. Another new car discount. But the growing consumer backlash against what critics decry as price gouging is most evident not only in food but also in consumer goods such as paper towels and napkins.
In recent months, consumer resistance has increased. led a major food company We need to respond by significantly slowing price increases from their peaks over the past three years.This does not mean grocery prices will retreat Prices are down to levels seen a few years ago, but prices for some items such as eggs, apples and milk are below their peaks. But modest increases in food prices should help further curb overall inflation, which has fallen sharply to 3.1% from a peak of 9.1% in 2022.
Public dissatisfaction with prices is increasing central problem President Joe Biden's re-election bid. Polls show that even though inflation has fallen dramatically, many consumers are unhappy that prices remain significantly higher than they were before inflation started accelerating in 2021. ing.
Biden echoed criticism from many left-leaning economists that he has allowed companies to boost profits by raising prices higher than necessary to cover their own rising costs.he also attacked the white house “Shrinkflation” This forces companies to reduce the amount in the package instead of increasing the price of the product.in Video released on Super Bowl SundayBiden denounced shrinkflation as a “rip-off.”
Consumer backlash against high prices suggests to many economists that inflation should be eased further. This will make the current round of inflation significantly different from the debilitating price spikes of the 1970s and early 1980s, which took time to overcome. When inflation continues to be high, consumers often develop an inflationary mindset. That is, as prices continue to rise, there is a tendency to accelerate purchases before costs rise further, a tendency that can itself perpetuate inflation.
“The fear was that everyone would accept the rise in prices,” said Gregory Daco, chief economist at consulting firm EY, noting that that hasn't happened. “I don't think we've moved into a high inflation regime.”
Instead, this time many consumers reacted like Stuart Dryden, a commercial bank underwriter in Arlington, Virginia. During a recent visit to his favorite grocery store, Dryden, 37, pointed out the large price difference between Kraft Heinz-branded products and competitors, which are now Kraft Heinz-branded.
For example, Dryden loves cream cheese and bagels. His 12 oz tub of Kraft's Philadelphia Cream Cheese costs $6.69. He said store brands cost just $3.19.
A 24-pack of Kraft Single Cheese Slices costs $7.69. Store label, $2.99. A 32-ounce bottle of Heinz Ketchup costs $6.29, but alternatives are only $1.69. A similar gap existed for macaroni and cheese and shredded cheese products.
“These five products alone already cost close to $30,” says Dryden. By his calculations, the replacement cost less than half that, about $13.
“I've tried private label options and the quality is the same and it's almost easy to switch from products I used to buy in bulk to private label only,” Dryden said.
Kraft Heinz spokesman Alex Abraham said costs rose 3% in the last three months of last year, but the company only raised prices by 1%.
“We are committed to streamlining our factories and other parts of our business to offset and mitigate further price increases,” Abraham said.
Last week, Kraft Heinz He said sales declined in the last three months of last year. As more consumers switch to cheaper brands.
Dryden also takes other steps to save money. I moved into a new apartment a year ago because my previous landlord raised the rent by about 50%. His previous apartment was next door to a relatively expensive Whole Foods grocery store. He now shops at a nearby AmazonFresh store and visits the discount grocer Aldi every few weeks.
Samuel Lines, an investment strategist at Kolb & Co., said PepsiCo, Kimberly-Clark, Procter & Gamble and many other consumer food and packaged goods companies have been hit hard by supply chain disruptions and losses caused by Russia's invasion of Ukraine. It says it has taken advantage of rising costs to dramatically increase its stock price. In 2021 and he 2022 prices will rise and profits will increase.
Contributing factors include the fact that millions of Americans have enjoyed solid wage increases and received stimulus checks and other government aid, making it easier to pay higher prices.
Still, some people decry this phenomenon as “grieflation.” and, March 2023 Research PapersEconomist Isabella Weber of the University of Massachusetts Amherst called this “seller's inflation.”
However, since the end of last year, many of these same companies have realized that this strategy is no longer working. Most consumers have already used up the savings they accumulated during the pandemic.
Especially low-income consumers Credit card debt increases and payments are delayed. Americans are spending more carefully overall. Daco said overall sales during his holiday shopping season increased by only 4%, most of which reflected higher prices rather than consumers actually buying more things. It points out that it does.
As an example, Reines points to Unilever, which makes Hellmann's mayonnaise, Ben & Jerry's ice cream, Dove soap, and more. Unilever increased prices across its brands by an average of 13.3% in 2022. Sales volume for the same year decreased by 3.6%. In response, prices increased by only 2.8% last year. Sales increased by 1.8%.
“We're starting to see that consumers are no longer willing to accept high prices,” Lines said. “So companies were starting to get a little bit skeptical about their ability to drive revenue solely around price. They needed to return those volumes, but consumers weren't responding in a satisfying way. It was.”
Unilever itself recently blamed its poor sales performance in Europe on “loss sharing to private brands.”
Other companies are taking notice, too. After sales declined in the final three months of last year, PepsiCo executives said they would limit price increases this year and focus more on growing sales.
“In 2024, we will see cost normalization and inflation normalization,” CEO Ramon Laguarta said. “So we think everything is trending back towards the long-term price trend.”
Jeffrey Harmening, CEO of General Mills, which makes Cheerios, Chex cereal, Progresso soup and dozens of other brands, acknowledged that customers are increasingly looking for bargains.
And McDonald's executives say that consumers with incomes of $45,000 or less Fewer visits, less spending When they visit, the company says it plans to emphasize low-priced items.
“Consumers are becoming more wary and fed up with pricing, and we will continue to drive consumer-driven pricing decisions,” Chief Financial Officer Ian Bowden told investors. ” he said.
Officials at the Federal Reserve, the country's main inflation-fighting agency, say consumers will pay higher prices as the main reason they expect inflation to decline steadily to its 2% annual target. This is due to the fact that people are becoming more reluctant to do so.
“Businesses are now saying they are very sensitive to prices,” San Francisco Fed President Mary Daley, a member of the Fed's rate-setting committee, said last week. She said, “A consumer is not going to buy unless he has a 10% discount…This is a significant improvement in the role consumers play in controlling inflation.”
A survey by the Federal Reserve's regional banks found that companies across all industries expect to raise prices modestly this year.The New York Fed says that companies in the region We plan to raise prices by an average of about 3% this year.it will decline by about 5% in 2023 and by 7% to 9% in 2022.
These trends suggest that companies were moving to slow the pace of price hikes, even before Biden's latest attack on price gouging.
“Consumers are more powerful than President Biden,” said Claudia Sahm, founder of SAHM Consulting and former Fed economist.
