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U.S. inflation ticked down in February as food prices started to fall, but shelter prices continued to remain high. Meanwhile, ecommerce prices turned further into deflation, as both annual and monthly comparisons showed prices coming down.
Let’s take a look at data on inflation across the economy, and ecommerce:
Consumer Price Index: More cooling
The Consumer Price Index for February 2023 showed the following:
On an annual basis, inflation rose 6% from February 2022. That’s down from 6.4% in January, continuing a downward motion in prices.
On a monthly basis, prices increased 0.4%, which was down slightly from the 0.5% increase in January.
Core inflation, which leaves out volatile food and energy prices, rose 5.5% year-over-year, down only slightly from 5.6% in January. On a monthly basis, core inflation was up 0.5%.
Food inflation dipped below 10% for the first time in months, registering at 9.5%. Food at home, which includes grocery, was 10.2%, compared with 11.3% in January. Five of the six major grocery indexes increased on the month.
Snacks brought a rare decrease in the food category, falling 0.9% for the month.
Shelter continues to be the driver of inflation. The shelter index increased 0.8% for the month, and 8.1% for the year.
Among consumer goods categories, CPI showed the following:
- Household furnishings and operations increased 0.8 percent for the month
- Apparel increased 0.8%, both for the month and annually.
- Toy prices increased 1.6%.
The annual change in CPI year-over-year inflation. (Via US BLS)
What’s the takeaway?
The report brought the latest sign that growth of the headline inflation reading was slowing. This trend now dates to October 2022. However, there continues to be plenty of signs that inflation is remaining stubborn on the way down. Shelter inflation is particularly high, and only rising. Electricity was up 12.9%. Meanwhile, core inflation's rise only inched down. Inflation continues to be a presence for consumers, which means elevated prices could continue to lead to cutbacks in discretionary spending.
After months of high inflation, consumers are increasing credit card balances and dipping into savings as they seek to make ends meet, said GlobalData Managing Director Neil Saunders.
“On the surface, these adjustments have allowed the consumer economy to remain resilient in the face of persistent inflation,” Saunders said. “However, under the surface there are cracks: behaviors among the lowest income households have changed sharply, reduced volumes are putting pressure on many retail and consumer businesses, and the financial position of many households is deteriorating. In short, inflation is not an enemy that consumers can withstand indefinitely.”
Comparing DPI and CPI. (Image via Adobe)
The Adobe Digital Price Index showed a deflationary motion for February, indicating that ecommerce prices are coming down even as the wider economy still sees prices rising.
Overall, the DPI showed online inflation falling 1.4% year-over-year, and 0.3% on a monthly basis. It was the sixth straight month that annual prices decreased.
Digging further into the data, 10 out of 18 categories showed decreases. Notable categories included:
Electronics fell 12.6% year-over-year, and 1.7% month-over-month. This continues notable drops in electronics prices, even after holiday season discounting has long since been completed.
Toys fell 6.5% year-over-year, and 0.4% month-over-month.
Home and garden products fell 3.8% year-over-year, while rising 0.2% monthly.
Furniture and bedding prices fell for the first time in 33 months, down 0.1% year-over-year and 0.6% monthly. “Consumers have become increasingly comfortable buying furniture online, after a pandemic where many wanted to spruce up their living spaces and had no choice but to tap ecommerce,” Adobe states.
Price increases are also slowing in categories that have shown more stubborn inflation.
Grocery prices cooled for the fifth straight month. They rose 11.4% year-over-year, but that was down from a 12.6% increase in January. This is the rare digital category that moves in concert with the Consumer Price Index. That’s because more people are buying groceries online, and when they do, they are ordering mostly from the same grocery stores where people shop in person.
Apparel prices were up 5.1% year-over-year, which is down notably from 16.7% in February of 2022.
Tools and home improvement are also coming down. The increase was 6.2% year-over-year, falling from 8.3% in December.
Check out the full category breakdown below:
(Photo courtesy of Adobe)
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.