Last fall, when inflation was rising at a rate of 8.5%, consumers were feeling the pain. Moody’s Analytics issued a report that found U.S. consumers were spending $445 a month more than 12 months ago to buy the same items.
What happened next may provide a glimpse into what it will take to bring down prices. Consumers started buying fewer of the same items they purchased a year earlier. Or they found cheaper alternatives.
The result was a declining inflation rate – albeit small – in November and December. The Consumer Price Index (CPI) rose just 0.1% in December as prices of some items continued to rise but others continued to fall.
The Wall Street Journal reports consumers are doing their part, leading a rebellion against rising prices by passing up products whose prices have risen sharply. That’s caused some manufacturers to rethink their price hikes.
“There’s no one silver bullet,” Joseph Bert, chairman and CEO of Certified Financial Group, recently told CNBC. “It’s all those little decisions that add up at the end of the month.”
Consumers’ impact plain to see
When consumers stop buying the brands they used to purchase, manufacturers notice. The Journal reports the impact is plain to see.
For example, it notes Conagra Brands Inc., a major food producer, increased prices by 17% in the last quarter of 2022. In the two previous quarters, it marked up prices by more than 10%.
Amid slowing sales, the company has embarked on a different strategy. Conagra says it’s put away its price gun after sales volumes dropped more than 8% for the quarter that ended Nov. 27.
Some economists say a consumer “revolt,” avoiding products whose prices have surged, may be helpful in reversing excessive price increases. In a new report, the Federal Reserve Bank of Kansas City, suggests companies may have been too quick to raise prices and raised them higher than necessary.
“One potential explanation that has received significant public attention is “greedflation”—that is, the idea that firms are capitalizing on their market power by raising their prices higher and faster than the growth in their production costs.” the authors wrote.