Price Increases Are Last Year’s Problem

Consumers are recoiling from higher prices, and with easing costs, many companies are stopping the higher-price cycle.

January 18, 2023

ALEXANDRIA, Va.—Companies are beginning to ease up on price increases, and it could be another sign that inflation in the U.S. is waning, reports the Wall Street Journal.

Many companies made substantial price increases to their products throughout 2022 in response to record-high fuel costs, as well as increased cost for ingredients, parts and labor. But as fuel prices ease and supply-chain issues begin to sort out, these costs are beginning to fall.

For product manufacturers, 2023 is the year of cost cutting, Mark Malo, a consultant and former executive at Clorox, told the Journal. On average, expenses should be flat as shipping rates fall, he said, but labor and other costs remain high for some products.

Conagra Brands indicated that it’s done increasing the cost for its products, which include Slim Jim and David seeds, after raising prices by 17% in the latest quarter and 10% in the previous two quarters. The company’s sales volumes decreased by 8.4% in the quarter ended November 27, and Conagra partially blamed the slip in sales on shoppers recoiling from the price increases.

Likewise, Constellation Brands plans to implement smaller price increases after the company saw sales slow after higher-than-usual price increases in October. And T-shirt company Chummy Tees raised the cost of its T-shirts by about $4 in 2020, according to founder Josh Neuman, but the company has since lowered the prices back to original levels after sales fell.

“The consumer’s mind-set has changed,” Neuman told the Journal. “They want to save money and raising prices is not an option for me in 2023, even though many of my costs are still elevated.”

The Journal reports that some companies raised prices not only because of increased costs for themselves but in anticipation of rising costs, which in turn, caused inflation to rise. A study by economists at the Federal Reserve Bank of Kansas City found that higher margins were a major driver of inflation in 2021.

Andrew Glover, a senior economist at the Federal Reserve Bank of Kansas City, told the Journal that he doesn’t expect prices to fall this year, but he anticipates that the pace of increase will continue to slow.

However, there are additional reasons why inflation is still high and could remain elevated, including China’s reopening, which could boost global demand for commodities and energy, as well as a tight labor market in the U.S. Inflation is down to 6.5%, falling from its peak of 9.1% in June, but it’s still well above the Federal Reserve’s target of 2%.

“We welcome these better inflation reports,” Fed Chairman Jerome Powell said last month. “But I think we’re realistic about the broader project.”

Meanwhile, top company executives are prepping for a global recession, albeit a mild and short one, according to a survey by the Conference Board, and they expect growth to return by late 2023 or the first half of 2024.

“Just about every region with the exception of China believes there’s going to be some kind of economic downturn,” Dana Peterson, the Conference Board’s chief economist, told the Journal. “Ninety-eight percent of CEOs in the U.S. think there is going to be a recession—but it’s going to be short and shallow.”

Instead of weathering the anticipated economic downturn with hiring freezes and layoffs, U.S. CEOs are more likely to focus on innovation, emphasize higher-growth business lines, protect margins with pricing strategies, invest in marketing and cut administrative and discretionary spending.

Overall, the study found top concerns for U.S. CEOs to be recession, inflation and labor shortages. A year ago, the top three concerns were labor shortages, inflation and supply-chain disruptions, and recession ranked sixth.