Inflation is Changing Consumer Habits
I recently read an article “How Americans cope with inflation: Less gas, lots of frozen pizza and cheap coffee” by Parija Kavilanz, CNN Business, outlining the struggles that everyday people are experiencing because of higher inflation and the sacrifices they are making in order to maintain a normal lifestyle.
The methods of buying in larger quantities to save on costs per unit and stepping down in quality in order to save on price, are just a few examples listed. Most people have never experienced inflationary pressures currently in the marketplace. You have to go back to the 1970s to see these types of price hikes and the pain that it is causing to working Americans.
Our current economic situation brings back a conversation that I still remember in one of my RIT MBA classes back in the early 1990s. It was a marketing class taught by a professor who also worked for French’s Mustard. We were talking about marketing during trying economic times and the discussion turned to his company and their overall competitive advantages.
I found it interesting when he noted that the best times the mustard division had were during periods of economic slowdowns or recessions. Being a young 22 year old with limited work experience, this seemed to defy all I had learned about in my economic and finance classes. He explained that times when the consumer is experiencing strains on their family budgets, they have to make sacrifices. Why mustard did so well was because sales in cold cuts and less expensive meats shot up, as these products were lower in price and a condiment that is very popular with these meats was mustard. A direct effect of a change in consumer behavior.
The longer that inflation remains a problem, the greater likelihood of more substantive changes in the spending patterns of consumers. If gas prices remain high, we should expect a shift from large SUV vehicles to smaller, affordable, economical cars. Also, consumers may decide to alter travel and vacation habits and stay closer to home or take more day trips instead of multi-day excursions.
We hope that the Federal Reserve’s actions are able to stem the upward inflationary conditions without causing too much of an economic slowdown. Something we definitely will keep an eye on over the next few months.
Scott Nasca, CFA®