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Inflation continues to be a defining factor of consumer behavior in 2023. New data from the U.S. government and Adobe issued this week offered a look at how price trends are playing out across the economy.
The overall inflation rate held relatively steady from the prior month, while online prices are falling faster.
Let’s dig in:
Headline inflation cooled in the slightest of ways in April. The Consumer Price Index reported the following for April 2023:
Inflation rose 4.9% from a year before, down just slightly from the 5% gain in March.
On a monthly basis, inflation rose 0.4%, which was up from 0.1% in March.
Core inflation, excluding food and energy, rose 5.5%.
Shelter remained the greatest contributor to the core inflation, rising 8.1%.
Food at home, which includes groceries, rose 7.1%, continuing a marked deceleration in this category.
What it means: Inflation is continuing its comedown from the highs of 2022, but it has not been a fast fall. The slight downtick observed in the numbers will do little to change consumer behavior from its current “frugal mindset,” said GlobalData Managing Director Neil Saunders.
"Unfortunately, we are currently in a period where the consumer economy is neither accepting of a new price level nor is sufficiently convinced that prices are coming down anytime soon," Saunders wrote. "Households are also facing higher debt servicing costs from elevated interest rates. There is really nothing in the economic data to produce a feel-good factor. This means many money-saving behaviors will persist for at least the balance of this year."
Online prices fell more markedly than those in the wider economy for April. The Adobe Digital Price Index reported the following for April 2023:
Online prices dropped 1.8% compared to April 2022, marking the eighth straight month of decline.
On a monthly basis, prices fell 0.7% from March.
Eleven out of 18 categories saw falling prices on an annual basis.
Here’s a look at key categories that saw declines:
Grocery prices were up 9.3% year-over-year, but continued a decline that has been underway for a number of months. At peak, online grocery inflation reached 14.3% in September 2022.
Personal care prices were up 3%, which was also a decline from the 4.3% observed in March. This category spiked to a 6% increase in February, and has been declining since.
Appliances fell 7.1%, which was the largest year-over-year drop for this category since Adobe’s tracking began in 2014.
Sporting goods marked the twelfth consecutive month of price declines, with a 6.4% year-over-year drop. Prior to that sporting goods prices rose for 28 straight months.
Other notable declines included toys (down 5.9% YoY), home/garden (down 5.6% YoY) and electronics (11.6% YoY).
Trending in Economy
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
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.