Economy
13 July 2022
US inflation rate reaches 9.1% for June, a new 40-year high
The monthslong rise in prices continues, according to the US Bureau of Labor Statistics.
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June brought the latest in a series of 40-year highs for inflation.
The monthly reading of the Consumer Price Index from the US Bureau of Labor Statistics showed a year-over-year increase of 9.1%. It was the largest 12-month increase since November 1981.
It showed inflation continuing its monthslong rise in 2022. The month-over-month increase in the CPI was 1.3%. This followed a 1% increase in May.
While the primary contributor was a 60% year-over-year spike in gas prices that was the highest since 1981, the food index was also among the most prominent drivers of the increase. It increased 1% in June following a 1.2% increase the prior month. An index that breaks out prices for food consumed at home rose 12.2% over the last 12 months, which was the largest increase since the period that ended in April 1979.
The core inflation rate, which leaves aside the volatile food and energy markets, was up 5.9% year-over-year, and 0.7% month-over-month, reflecting a “broad-based” increase in almost all of its measures. This included:
- Apparel rose 0.8% month-over-month in June, following a .7% increase in May.
- Personal care rose 0.4% month-over-month.
- Household furnishings rose 0.4% month-over-month, and 9.5% year-over-year.
In an effort to tame inflation, the Federal Reserve acted in June to raise interest rates by 0.75%, which was its highest increase since 1994. Even before Wednesday’s reading, there was an emerging consensus among economists that another hike is likely in July.
The Fed’s tools are designed to cool demand. But Federal Reserve Bank of San Francisco Senior VP of Economic Research Adam Hale Shapiro recently conducted an analysis that showed supply factors play a big role, accounting for half of the rise of current inflation. Demand factors, meanwhile, accounted for 30%, the analysis showed.
Consumers increasingly see supply issues behind rising prices, as well. A poll released recently by the Consumer Brands Association showed that consumers increasingly blamed supply chain issues for grocery inflation over the pandemic and other issues.
On the demand side, the current picture will come more fully into focus when the federal government releases the latest data for monthly retail sales on Friday.
The National Retail Federation focused its response to the news on actions that the administration of President Joe Biden and Congress can take.
"NRF consumer surveys and economic research indicate that consumers continue to modify their behavior and change spending patterns to adapt to price increases in a wide range of goods and services. But modified behavior and changed spending patterns alone aren’t sufficient to help offset price increases that impact households," said NRF President Matthew Shay, in a statement. “We need to support other policy measures that will lower costs, like the recent passage of the Ocean Shipping Reform Act for which we thank the administration and bipartisan congressional majorities for supporting. In addition, we encourage the administration to act quickly and remove China tariffs that cost American families more than $1,200 annually."
Ecommerce relief?
The data suggests that there is some divergence emerging between ecommerce and the wider price picture. The inflation reading for the overall economy comes a day after the Adobe Digital Price Index showed online inflation was increasing by a more modest 0.3% year-over-year, while falling 1% month-over-month. However, the rising cost of fuel and transportation has added pressure on margins and difficulty for all businesses, including those who sell online.
It leads to the question: Can ecommerce provide some relief from inflation by providing a source of cheaper goods at a time when Americans are in search of discounts? The data suggests that there could be a benefit in embracing this theme for brands and retailers.
To be sure, brands and retailers face their own price pressures due to inflation, as rising fuel and transportation costs take a toll on margins. They also face rising customer acquisition costs, and continued supply issues.
Not to mention, consumers are more likely to seek out essentials first as prices rise further, meaning categories where ecommerce is especially strong like apparel, beauty and even electronics may be facing a pullback.
Still, it could be especially appealing to double down on inflation-era messaging amid the summer of sales. After all, heavy discounting is already visible across the retail landscape as retailers try to move out inventory that was overbought in the supply chain crunch that helped to cause inflation in the first place. It seems especially fitting that this data arrives during Prime Day, when Amazon and a host of other retailers are offering big deals in the middle of summer.
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Marketing
09 June 2023
'There's a lot of ways to frame value'
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
Photo by Kelly Common on Unsplash
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.
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