The great inflation spike of the past three years is nearly spent \u2014 and economists credit American consumers for helping slay it.<\/p>\n
Some of America’s largest companies, from Amazon to Disney to Yum Brands, say their customers are increasingly seeking cheaper alternative products and services, searching for bargains or just avoiding items they deem too expensive. Consumers aren’t cutting back enough to cause an economic downturn. Rather, economists say, they appear to be returning to pre-pandemic norms, when most companies felt they couldn’t raise prices very much without losing business.<\/p>\n
\u201cWhile inflation is down, prices are still high, and I think consumers have gotten to the point where they\u2019re just not accepting it,\u201d Tom Barkin, president of the Federal Reserve Bank of Richmond, said last week at a conference of business economists. “And that\u2019s what you want: The solution to high prices is high prices.\u201d<\/p>\n
A more price-sensitive consumer helps explain why inflation has appeared to be steadily falling toward the Federal Reserve’s 2% target, ending a period of painfully high prices that strained many people’s budgets and darkened their outlooks on the economy. It also assumed a central place in the presidential election, with inflation leading many Americans to turn sour on the Biden-Harris administration’s handling of the economy.<\/p>\n
The reluctance of consumers to keep paying more has forced companies to slow their price increases \u2014 or even to cut them. The result is a cooling of inflation pressures.<\/p>\n
Other factors have also helped tame inflation, including the healing of supply chains, which has boosted the availability of cars, trucks, meats and furniture, among other items, and the high interest rates engineered by the Fed, which slowed sales of homes, cars and appliances and other interest rate-sensitive purchases.<\/p>\n
Still, a key question now is whether shoppers will pull back so much as to put the economy at risk. Consumer spending makes up more than two-thirds of economic activity. With evidence emerging that the job market is cooling<\/a>, a drop in spending could potentially derail the economy. Such fears caused stock prices to plummet a week ago<\/a>, though markets have since rebounded.<\/p>\n
Many businesses have noticed.<\/p>\n
Consumers are no longer so accepting, Barkin said.<\/p>\n
Barkin said he expects this trend to continue to slow price increases and cool inflation.<\/p>\n