Consumers Said To Be Resigned To Higher Prices

Inflation, at a 40-year high, has yet to stir Americans to switch to cheaper brands or quit spending in any significant way so as to cause concern in corporate boardrooms, reports Forbes.

American consumers seem to have passed through the other stages of grief, which include anger and denial, and have settled on acceptance–in higher numbers than anybody expected, including executives behind the nation’s biggest household brands. There’s even an economic term for this phenomenon: elasticity, which captures how much demand for a product falls when prices go up.

“Demand elasticity has been surprisingly low,” said Kevin Grundy, an analyst at Jefferies Group who covers consumer-product companies. “It’s kind of so far, so good.” 

U.S. prices are soaring on everything from gas to groceries to cleaning supplies. Consumer-product giants like Unilever, Procter & Gamble and Clorox have been rolling out price increases and pulling back on promotions in an effort to offset inflation and protect their own margins as they grapple with double-digit increases in the price of raw materials like corn, wheat and soybeans, and increased costs of packaging, transportation and labor.

Have shoppers rebelled? No. 

When P&G raised prices last year on products where consumers are normally very sensitive to increases, the company was surprised to see that elasticity figures were 20% to 30% lower than historical data would suggest.

“We’ve seen a more benign reaction of the consumer,” Andre Schulten, chief financial officer at P&G, which makes Gillette razors, Dawn dish soap and NyQuil cold medicine, said in a January earnings call. Others have echoed the same finding. “Prices are sticking, and elasticities are better than our initial forecasts,” said Barry Bruno, chief marketing officer at Church & Dwight, the maker of Trojan condoms, Arm & Hammer laundry detergent and Vitafusion vitamins.

As Beth Ann Bovino, the chief U.S. economist at Standard & Poor’s Ratings Services, pointed out, it’s not that shoppers are happy with higher prices. It’s that they’ve accepted the situation. Consumer sentiment has fallen to the lowest level in a decade, “and that’s largely the sticker shock at stores,” she said.