• Major Manufacturers Cutting Prices: The shift is due to decreased consumer demand, which is a step in the right direction to tame inflation.

• Shift From Unprecedented Price Increases in 2022: Traditionally rare multiple price hikes within a year became common in 2022, reflecting overstimulated demand from Covid stimulus.

• Use of Advanced Pricing Tools: Suppliers claim to use sophisticated models to maintain product affordability while maintaining profitability, but during the pandemic prices only went up.

• Algorithmic Pricing in Different Sectors: Property managers and goods manufacturers use similar advanced software to optimize pricing, raising ethical and legal concerns.

• Financial Stress Among Lower Income Americans: Warnings from banks like JP Morgan Chase about economic pressures on lower income groups, influencing market and policy decisions.

• • Warnings of Economic Pressure on Lower Income Americans: This group’s purchasing power is crucial for economic stability, influencing broader market dynamics and potential policy decisions like interest rate cuts.

Taming Inflation

I sound like a broken record stuck on the same song about how the US consumer is the key to taming inflation, but more important announcements have rolled out since pointing to just that. More goods manufacturers like Proctor and Gamble, PepsiCo and General Mills announced price cuts of many of their most popular products in response to deteriorating demand from cash strapped consumers. I don’t believe that last quarter’s announcements by Target and Walmart regarding lowering prices are not correlated, these massive customers demanded price relief from the supply chain and got it!

Optimal Pricing Technology Raising Ethical and Legal Concerns

This represents a full reversal of General Mills having raised prices five times in 2022, a sequence of events their own head of sales for North America had likely never happened before. Even one increase in a year was rare until 2022 according to his interview at a consumer goods conference.

I like this quote from Jonathan J. Nudi, Group President of General Mills North America Retail, as it dovetails into last week’s article perfectly about pricing to perfection.

“We have tools now that are very technical and models that really help us figure out the best way to take pricing,” he said. “So, in many cases, it was list price increases. We adjusted our promotional frequency and depth as well. And then pack price architecture is another area that we leaned into. So, if you look in the market, you look at Nielsen, you can see our prices are up significantly versus a year ago. And again, our goal is to keep our products as affordable as possible for consumers.”

Interestingly, incomes from non-stimulus sources was flat to down during the pandemic, but the algo told them to raise prices over and over.  This sounds a lot like what apartment owners using revenue management software were accused of, using sophisticated software to optimize rental rates to their absolute maximum every day. A class action was brought against the software provider RealPage, and they lost settling for a multibillion-dollar judgment. Is price gouging a major source of inflation? I think so.

“A number of lawsuits against Texas-based company RealPage are putting increased attention on how algorithms can interact with the rental market. In the lawsuit, RealPage is accused of facilitating a cartel between major property managers that results in higher prices for renters and increased profits for landlords who use RealPage’s software.” (Source: NPR, January 11, 2024)

Economic Stress Triggering Policy Changes Like Interest Rate Cuts

More warnings come out regarding the purchasing power of lower-income Americans as JP Morgan Chase warns of signs of stress among its lower-income clients. This is on the tail of a subdued, in a good way, CPI report, which everyone feels sets firm footing for a September rate cut…..I’ll hold my breath.