Washington — 

Inflation has changed the way many Americans shop. Now, those changes in consumer habits are helping bring down inflation.

Due to consistently inflated prices, consumers are becoming increasingly frustrated and are taking action. They are opting for store-brand products over name brands, choosing to shop at discount stores, or limiting purchases of luxury and indulgent items such as snacks and gourmet foods.

Instead of purchasing new cars, many Americans are opting for used cars, which has led dealers to offer discounts on new cars once more. However, consumers are becoming increasingly resistant to perceived price hikes in areas such as food and household items, such as paper towels and napkins.

Over the past few months, consumers have pushed back against large food companies, causing them to significantly decrease their price increases compared to the last three years. This does not necessarily mean that grocery prices will return to their levels from a few years ago, but it has resulted in lower prices for some items such as eggs, apples, and milk. These more moderate increases in food prices should also have a positive impact on overall inflation, which has dropped from a high of 9.1% in 2022 to 3.1%.

Many people are expressing dissatisfaction with the rising prices, which has become a prominent concern in President Joe Biden’s campaign for a second term in office. Surveys indicate that even though inflation has decreased significantly, a large number of consumers are displeased that prices are still significantly higher than they were before inflation started to accelerate in 2021.

President Biden has expressed similar disapproval as left-leaning economists towards corporations who have increased their prices beyond necessary to compensate for their own increased expenses, resulting in higher profits for themselves. The White House has also taken issue with “shrinkflation,” a tactic used by some companies to keep prices unchanged by reducing the amount of product in the package. In a video released on Super Bowl Sunday, Biden criticized shrinkflation as being deceitful and disadvantageous to consumers.

Many economists believe that consumers showing resistance to high prices indicates a potential decrease in inflation. This would distinguish the current inflation from the severe price jumps of the 1970s and early 1980s, which were more difficult to overcome. In situations of prolonged high inflation, consumers may develop a mindset of expecting price increases, causing them to buy more in anticipation of rising costs. This behavior can contribute to a cycle of continuous inflation.

Gregory Daco, a chief economist at consulting firm EY, expressed concern that increased prices would be accepted by all, but he acknowledges that this scenario has yet to unfold. He believes that the current state does not indicate a trend towards high inflation.

On a recent visit to his usual grocery store, Stuart Dryden, a 37-year-old commercial underwriter from Arlington, Virginia, expressed his reaction to a common occurrence among consumers. He noticed significant differences in prices between Kraft Heinz products and alternative store brand items, leading him to now opt for the latter.

For instance, Dryden has a fondness for bagels and cream cheese. A 12-ounce container of Philadelphia cream cheese from Kraft costs $6.69. However, he pointed out that the store’s generic brand is only $3.19.

A bundle of 24 Kraft single cheese slices costs $7.69, while the store brand is priced at $2.99. Comparatively, a 32-ounce bottle of Heinz ketchup costs $6.29, while the alternative is only $1.69. Similar discrepancies can be seen with macaroni and cheese and shredded cheese items.

According to Dryden, the total cost of those five items is almost $30. He estimated that the substitutes would only be around $13, less than half the cost.

Dryden mentioned that they have been experimenting with private-label choices, and found that the quality is comparable. It seems like a logical decision to switch from their previous high-volume purchases to solely using private-label products.

Kraft Heinz’s spokesperson, Alex Abraham, reported a 3% increase in costs during the last quarter of 2019. However, the company only increased its own prices by 1%.

Abraham stated that they are making every effort to discover ways to improve efficiency in their factories and other aspects of their business in order to minimize and counteract any potential increases in prices.

Recently, Kraft Heinz reported a decrease in sales during the last quarter of the past year due to a trend of consumers switching to more affordable brands.

Dryden has implemented additional measures to cut costs: Twelve months ago, he relocated to a different apartment due to a substantial rent increase from his previous landlord. His former living space was situated next to an expensive supermarket, Whole Foods. At present, he shops at a nearby Amazon Fresh and makes occasional visits to the budget-friendly grocery store Aldi.

According to Samuel Rines, a strategist at Corbu, various companies in the consumer food and packaged goods industry, including PepsiCo, Kimberly-Clark, and Procter & Gamble, took advantage of supply chain disruptions and Russia’s invasion of Ukraine to significantly raise their prices and boost their profits during 2021 and 2022.

One reason for this trend was that a large number of Americans experienced significant increases in their wages and also received financial assistance from the government, which helped them afford the increasing costs.

However, others criticized the occurrence as “greedflation.” In a research paper published in March 2023, economist Isabella Weber from the University of Massachusetts, Amherst, described it as “seller’s inflation.”

Starting last year, several companies realized that their approach was no longer effective. The majority of customers have already used up the money they saved during the COVID-19 pandemic.

Lower-income consumers, in particular, are running up credit card debt and falling behind on their payments. Americans overall are spending more cautiously. Daco notes that overall sales during the holiday shopping season were up just 4% — and most of it reflected higher prices rather than consumers actually buying more things.

For instance, Rines cites the case of Unilever, a company that produces a range of products such as Hellman’s mayonnaise, Ben & Jerry’s ice cream, and Dove soaps. In 2022, Unilever increased its prices by an average of 13.3% across its brands, which resulted in a 3.6% decrease in sales volume. However, in the following year, it only raised prices by 2.8%, and as a result, sales increased by 1.8%.

According to Rines, there is a shift in consumer behavior where they are no longer willing to pay high prices. This is causing companies to be more cautious about relying solely on price to drive their revenues. Instead, they need to see a return in consumer volume, which is not happening as positively as they had hoped.

Unilever has recently credited its inadequate sales performance in Europe to the rise in popularity of private label products.

Other companies have also become aware of this trend. Following a decrease in sales during the last three months of the previous year, executives at PepsiCo have expressed their intention to control price hikes and shift their focus towards increasing sales.

In 2024, CEO Ramon Laguarta predicts that there will be a normalization of costs and inflation. He also expects pricing to return to their long-term trends.

Jeffrey Harmening, CEO of General Mills, which makes Cheerios, Chex Cereal, Progresso soups and dozens of other brands, has acknowledged that his customers are increasingly seeking bargains.

McDonald’s leaders have stated that their customers with incomes lower than $45,000 are making fewer visits and spending less during their visits. The company intends to emphasize their more affordable menu options.

“The company’s Chief Financial Officer, Ian Borden, stated that consumers are cautious and fatigued when it comes to pricing, and as a result, the company will prioritize meeting consumer needs with pricing decisions.”

The Federal Reserve, the main organization responsible for preventing inflation, has noted that consumers are becoming less willing to pay higher prices. This is a major factor in their prediction that inflation will gradually decrease and reach their desired annual target of 2%.

“According to Mary Daly, president of the Federal Reserve Bank of San Francisco and part of the Fed’s interest-rate setting team, firms are expressing that there is a heightened sensitivity to prices at the moment. She stated last week that consumers are more reluctant to make purchases unless they are presented with a 10% reduction in price. This signifies a significant change in the impact consumers have on controlling inflation.”

According to surveys conducted by the regional banks of the Federal Reserve, businesses in all sectors anticipate implementing smaller price hikes in the current year. The New York Federal Reserve reports that companies within its jurisdiction are aiming to increase prices by an approximate average of 3% this year, compared to 5% in 2023 and 7-9% in 2022.

The trends indicate that companies were already starting to decrease their price increases before Biden’s recent actions against price gouging.

According to Claudia Sahm, the creator of SAHM Consulting and a previous economist for the Federal Reserve, consumers hold more power than President Biden.

Source: voanews.com