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Inflation rate: Companies maintain high prices
Although inflation continues to slow down, from a one-time high of more than nine percent, a lot of consumers are still finding prices stubbornly high. FOX 26 Business Reporter Tom Zizka says many of the companies that make things we buy want to keep it that way.
HOUSTON - While inflation continues to slow from a one-time high of more than 9%, a lot of consumers are still finding prices are stubbornly high. Many of the companies that make the things we buy like it that way. It's a problem that's starting to bubble over, as retailers are finding the tipping point between suppliers and consumers, and how far we're willing to stretch our wallets.
When Europe's largest grocery chain, Carrefour, said it dumped Pepsi products from store shelves because of rising prices, it made a generally "private" conversation between retailers and suppliers very public.
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Houston economist Samuel Rines says pandemic demand, supply-chain challenges, and war in Ukraine offered the perfect environment for producers across the spectrum to use it as an excuse to raise prices. "Companies really figured out that it was an opportune time to say, 'Let's find how high we can push prices'," says Rines.
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For now, "excuseflation" as it's become known, shows little sign of easing. At the height of the pandemic, prices rose to compensate for the higher cost of producing and transporting products. Now, as those costs have fallen, prices have not. Even if consumers buy less, corporations still make money.
"As long as the price increase of 7, 8, 9% overwhelms the 3, 4, 5% volume decreases, they're making more money and they're happy with it," says Rines.
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That stretch, known as "elasticity" in economics, is much like seeing how far an elastic band will stretch before breaking. Privately, to investors, corporate leaders will admit to pushing the limits. That brings us back to the pushback against Pepsi, and customer-facing retailers saying, "enough."
"They're really sitting there saying, 'We're not going to continue to allow you to keep pushing prices on us'," says Rines, "That's a signal that pricing power has probably found its peak."
Retailers don't, generally, talk publicly about these talks with suppliers, but Rines says they are happening. Because of such negotiations, prices may not fall soon, but they may not rise dramatically, either.