- Dec 3, 2006
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Inflation has changed the way many Americans shop. Now, those changes in consumer habits are helping bring down inflation.
Fed up with prices that remain about 19%, on average, above where they were before the pandemic, consumers are fighting back. In grocery stores, they're shifting away from name brands to store-brand items, switching to discount stores or simply buying fewer items like snacks or gourmet foods.
More Americans are buying used cars, too, rather than new, forcing some dealers to provide discounts on new cars again. But the growing consumer pushback to what critics condemn as price-gouging has been most evident with food as well as with consumer goods like paper towels and napkins.
In recent months, consumer resistance has led large food companies to respond by sharply slowing their price increases from the peaks of the past three years. This doesn't mean grocery prices will fall back to their levels of a few years ago, though with some items, including eggs, apples and milk, prices are below their peaks. But the milder increases in food prices should help further cool overall inflation, which is down sharply from a peak of 9.1% in 2022 to 3.1%.
Public frustration with prices has become a central issue in President Joe Biden’s bid for re-election. Polls show that despite the dramatic decline in inflation, many consumers are unhappy that prices remain so much higher than they were before inflation began accelerating in 2021.
Biden has echoed the criticism of many left-leaning economists that corporations jacked up their prices more than was needed to cover their own higher costs, allowing themselves to boost their profits. The White House has also attacked “shrinkflation,” whereby a company, rather than raising the price of a product, instead shrinks the amount inside the package. In a video released on Super Bowl Sunday, Biden denounced shrinkflation as a “rip-off.”
Consumer pushback against high prices suggests to many economists that inflation should further ease. That would make this bout of inflation markedly different from the debilitating price spikes of the 1970s and early 1980s, which took longer to defeat. When high inflation persists, consumers often develop an inflationary psychology: Ever-rising prices lead them to accelerate their purchases before costs rise further, a trend that can itself perpetuate inflation.
“That was the fear — that everybody would tolerate higher prices,” said Gregory Daco, chief economist at EY, a consulting firm, who notes that it hasn't happened. “I don't think we've moved into a high inflation regime.”
Instead, this time many consumers have reacted like Stuart Dryden, a commercial underwriter at a bank who lives in Arlington, Virginia. On a recent trip to his regular grocery store, Dryden, 37, pointed out big price disparities between Kraft Heinz-branded products and their store-label competitors, which he now favors.
