The Bureau of Labour Statistics said Thursday that inflation was lower than expected in October, but remains high. And household necessities such as housing, food, and energy remained a major driver of the consumer price Index, which continues to rise at the fastest pace on record, according to a report from CNBC.
Consumer price inflation slowed to 7.7% in October, suggesting that persistent inflation plaguing the U.S. economy is showing signs of cooling, although it remains near a 40-year high. The new figure compares with 8.2 percent in September. On a monthly basis, inflation rose 0.4 percent, compared with 0.4 percent in September.
Inflation is a measure of how fast the prices consumers pay for a variety of goods and services are rising. Economists expect growth of 7.9% this year, according to Dow Jones. Basically, a basket of goods and services that was worth $100 a year ago now costs $107.70.
The annual rate is down from a pandemic peak of 9.1 percent in June and 8.2 percent in September but still hovers near its highest level since the early 1980s. A fall in the annual inflation rate does not mean a fall in the prices of goods and services; It just means prices aren’t going up as fast.
Healthy economies experience slight inflation every year. Federal Reserve officials aim to keep inflation at about 2% a year. But after years of low inflation, prices began rising at an unusually fast pace starting in early 2021.
High inflation and price rise are eroding the purchasing power and greatly affecting retailers’ sales, especially during the holiday shopping season.
U.S. retailers are going through an uncertain holiday season. Headlines are full of mixed macroeconomic indicators, from falling consumer confidence and rising interest rates to low unemployment and rising wages. Despite lingering recession fears, GDP growth in the third quarter was surprisingly strong. High inflation remains. That could push nominal holiday sales growth into the expected 7.5 percent range, but it could also constrain shoppers, meaning actual sales could rise just 1 percent to 3 percent.
Retailers have started the shopping season early amid the market turmoil, continuing a trend that has been going on for two years. Many companies launched promotions in October because of a glut of inventory earlier in the year, though the extent to which they fueled holiday demand is unclear.
Besides, the shopping demand of shoppers is a vital factor to change retailers’ strategies during the shopping season. According to data collected by CouponBirds, a US coupon site, 40% of consumers say inflation will change how they shop this holiday season and save money. 84% of holiday shoppers will use money-saving strategies this year, including buying cheaper brands; finding coupons, sales, and discounts; starting shopping earlier; buying fewer items; using credit card rewards to offset costs; shopping in-store with a membership account or store-specific card; and buying used items.
Higher inventory levels and tighter consumer budgets will force retailers to get creative with their promotional strategies this holiday season. The winning retailer raises prices to keep up with soaring input costs but uses promotions to clear excess inventory. At the same time, to grapple with soaring input costs and cautious shoppers, retailers are taking measures, including changing pricing, improving operational efficiency, and shrinking products.
Raise prices selectively
Grocers have been exemplary in selectively passing on cost increases. Both large and small grocers are strategically holding back price increases for known value items (KVIs), while non-KVIs prices are rising at a higher rate to protect overall profits. KVIs are commodities that people buy frequently and greatly impact price perception.
Other category leaders are taking lessons from grocers this holiday season, too. Some retailers are limiting price increases on everyday purchases and selectively clearing excess inventory with promotions on seasonal and seasonal items, including holiday items. Kohl’s CFO, for example, said the retailer has been “aggressively clearing and promoting” to manage excess inventory, including overstocked holiday merchandise.
Targeted promotions
Retailers can use base prices and promotions to create a bit of holiday magic for customers looking for the perfect gift. In recent months, retailers in many categories, except clothing and accessories, have raised base prices while cutting back on promotions. The changes mean higher out-of-the-door prices for consumers on holiday shopping.
Successful retailers control out-of-the-door prices by avoiding the pitfalls of large-scale promotions. As with base price increases, they are more strategic about what is on sale and at what price. Williams-Sonoma, for example, unlocks value by eliminating site-wide discounts. Walmart also announced plans to keep costs low and offer additional promotions on popular gifts.
Shrinkflation
Before they know it, American consumers may be falling for the tricks of the business world. At the same or higher prices, consumers are finding less toilet paper, thinner cookie boxes, less liquid dish soap, and even fewer “premium” lipstick packages.
With U.S. inflation hitting a 40-year high, households are paying more for daily expenses and companies are experimenting with packaging to control costs.
In general, the most common way manufacturers respond to inflation is to “shrink” products, such as toilet paper or biscuits, by reducing their size and quantity of them. This is also known as “shrinkflation”. But now they are cutting costs by changing packaging in ways that are often harder to detect.
For example, the inside of a carton containing lipstick used to be white because it made the lipstick appear more fashionable and upscale. But white wrapping paper costs 20 to 30 percent more than recycled gray or brown materials.
That’s why, under inflationary pressure, consumers are likely to see more brown and gray packaging, as brands prefer cheaper, sustainable options such as recycled paper.
The effects of inflation are still being felt, changing consumers’ spending habits and hurting retailers’ sales. Merchants need to have timely insight into the changes of consumers and the market to make appropriate strategies to ensure their profits, while consumers also need to be alert to the routines and traps of retailers to get the maximum benefits and interests for themselves.
