Americans’ Revolt Against Price Hikes Could Signal End of U.S. Inflation Surge

Prices remain elevated, and American consumers are no longer willing to tolerate it, say economists.

WASHINGTON — The significant inflation surge of recent years appears to be waning, and economists are crediting consumers for ushering in this change.

Major corporations like Amazon, Disney, and Yum Brands note that their customers are increasingly turning to more affordable alternatives, searching for bargains, or simply avoiding high-priced items. This shift hasn’t been strong enough to trigger an economic downturn but reflects a return to pre-pandemic purchasing behaviors. Companies are finding it harder to raise prices without losing customers.

“While inflation has decreased, prices remain high, and consumers seem unwilling to accept them anymore,” Tom Barkin, president of the Federal Reserve Bank of Richmond, stated at a recent conference. “And that’s the desired outcome: the remedy for high prices is high prices.”

This rise in price sensitivity among consumers is contributing to the steady decline in inflation rate as it inches closer to the Federal Reserve’s 2% target. This trend brings relief after a period of high prices that strained many budgets and affected public sentiment toward economic management under the Biden-Harris administration.

Due to the consumer pushback, companies have been compelled to either decelerate their price hikes or even reduce prices, leading to diminished inflation pressures.

Several factors have also played a role in tempering inflation. Improvements in supply chains have increased the availability of cars, trucks, meats, and furniture. Additionally, high interest rates instigated by the Fed have dampened sales in interest-sensitive markets like real estate and automobiles.

Yet, a pressing question looms: will consumer pullback become significant enough to jeopardize the economy? With consumer spending constituting over two-thirds of economic activity, a considerable decline could pose risks, especially as signs of a cooling job market begin to surface. These fears were manifest last week when stock prices took a dive, although there has been a recovery since then.

This week, the government is set to release key updates on inflation and consumer health. On Wednesday, the consumer price index for July will be released, anticipated to show a 3.2% rise in core prices from the previous year—a slight drop from June’s 3.3% and the lowest since April 2021.

On Thursday, retail sales data for last month will be reported, expected to have risen by 0.3% from June. If accurate, this indicates cautious consumer behavior, yet a continued willingness to spend. Businesses have begun to take note.

“We’re observing lower average selling prices because customers are downgrading when possible,” remarked Amazon CEO Andrew Jassy.

Yum Brands CEO David Gibbs noted that cost-conscious consumers have caused sales at their outlets (Taco Bell, KFC, and Pizza Hut) to dip by 1% between April and June.

Companies like Dormify are actively reducing prices, exemplified by their recent reduction in comforter prices from $99 to $69.

Similar reports are emerging across different regions, as described in the Federal Reserve’s “Beige Book,” an anecdotal collection of business reports, indicating widespread discounting and consumers prioritizing essentials.

Nonetheless, economists believe consumer spending remains robust enough to sustain economic growth. Barkin shared that firms in his district, which includes Virginia, West Virginia, Maryland, and the Carolinas, report steady demand at suitable prices.

Senior economic advisor Jared Bernstein pointed to consumer caution as a contributing factor for inflation nearing the Fed’s 2% target. Post-pandemic, consumers were less reactive to price increases, unlike in pre-COVID times when online shopping facilitated easy price comparisons and major retailers controlled costs stringently.

Additionally, high prices pre-pandemic were so seldom encountered that significant price hikes were seldom tolerated. Today, supply chain disruptions and labor shortages are compelling consumers to reassess their spending habits.

Economist Isabella Weber dubbed this “sellers’ inflation,” defining it as a response to perceived supply chain challenges justifying price increases, previously accepted by customers more willingly.

Now, consumers are pushing back. Barkin predicts that this trend will continue to temper price increases and subsequently cool inflation.

“I’m optimistic that in the upcoming months, we will see favorable inflation readings,” Barkin concluded. “Inflationary pressures appear to be stabilizing.”