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It’s already apparent that inflation is turning a corner. The annual rate was 6.5% in December compared with 7.1% a month before.
While that’s due in large part to months of rising interest rates, the Wall Street Journal reports Tuesday that a “shopper rebellion” is also compelling some businesses to cut prices.
“Consumers last year cut back on purchases, suggesting that they were hitting a ceiling on prices they were willing to pay,” the Journal reported.
That’s Econ 101. Prices are determined by supply and demand, with merchants pricing goods as high as the market will bear.
This shopper rebellion suggests the market will bear no more.
But there’s another interesting aspect to this.
The Federal Reserve Bank of Kansas City determined in a recent report that some companies have been raising prices not solely due to higher production and distribution costs, but in anticipation of higher costs.
Which is to say, they weren’t passing along higher operating expenses to consumers but rather outsourcing their risk management to customers — they were making us pay for their economic worries.
You can call that price gouging. Or you can call that prudent management. It all depends where you’re sitting.
I get asked frequently why there aren’t more crackdowns on seeming profiteering. The answer is that it’s very hard to prove.
Yes, it often appears that businesses are exploiting uncertain economic situations to stick it to consumers (hi, Big Oil!).
But it can very hard for financial authorities to show conclusively that businesses were fleecing people as opposed to simply managing market conditions and economic forecasts.
The Fed report indicates that at least some price hikes in past years have been unwarranted, fueled more by pessimism than higher costs.
Our monetary mavens clearly need to study this more, and to enact rules that limit the impact on consumers.
For the time being, though, the tea leaves show we’re possibly through the worst (fingers crossed) and prices are gradually heading south.
For beleaguered shoppers, whatever the reason, that’s a relief.
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