By Admin

Putting context around inflation in the U.S.

Inflation in the U.S. was a wartime phenomenon before the 1970s. From 1965 to 1983 came the Great Inflation. This resulted from a combination of factors that created a decade-long period of high inflation and unemployment. It is now known as “stagflation”. Paul Volcker was appointed the Federal Reserve’s chair in 1979 and took aggressive measures to reduce inflationary expectations. From a peak in April 1980, inflation dropped by July 1983. The Fed then made inflation its primary focus, and not unemployment. Inflation was controlled for nearly 40 years.

Inflation was below four per cent for the majority of the last 15 years. This remarkable record of success is remarkable considering the economic turmoil that have occurred along the way, such as the savings and loan crisis of the 1980s and 1990s, the dot-com bust in 2000, and the Great Recession in 2008. The pandemic of 2020 proved too much.

Pandemic lockdowns created a knot in the global economy that is difficult to unravel. Government support programs helped consumers get through the crisis in good condition. After the economy had reopened, a flood of demand exceeded commercial capacity. In March 2021, prices began to rise and continued to climb month after month. Initially, the Fed hesitated to issue a rapid, forceful response. It preferred to wait to see if inflation was more than a temporary gremlin in a global economy still recovering after the pandemic.

Only when prices rose to levels never seen since the Great Inflation did it become clear that inflation was here for the long-term. The Fed’s 2020 average inflation targeting policy, which allows the Fed to tolerate periods of high inflation to offset periods of low inflation before maintaining a targeted long-term average of inflation, was also part of its response. The initial reaction to the price rise in mid-2021 was not more than a cautious eye.

The February 2022 Russian invasion of Ukraine was the wild card that exacerbated the situation. It further slowed supply chains, spiked energy costs, and raised food prices by preventing Ukraine from exporting critical foods like wheat, sunflower oil, and corn.

Feeling a sense of risk exposure.

The challenge facing U.S. consumers today is partly due to four decades of low inflation. Generation X and Millennials, born after the mid-1980s, are unfamiliar with the current inflationary squeeze. Inflation is not just a problem for today’s market. Inflation is a disturbing lifestyle experience that leaves people uncomfortable and exposed to uncertainty.

Inflation adds to the worry and anxiety caused by the pandemic. According to the World Health Organization, there has been an increase in depression and anxiety worldwide. The Centers for Disease Control in the USA found that over 30% of Americans experienced anxiety symptoms in 2020. Although this percentage has decreased slightly from the baseline of 8 per cent in 2019, it is still much higher than in 2019.

It is also a time of vulnerability. Due to the pandemic, people are forced to try new ways of living and working. The most prominent example is hybrid work. A data shows that people are changing their lives, redefining relationships and thinking differently about careers. These changes require people to step outside of their comfort zones. This can lead to vulnerability. Inflation has taken off at precisely this moment.

People feel a sense of risk exposure. It’s not inflation. Inflation within a larger context of war, pandemics, and political turmoil. People are looking for pocketbook relief but also risk reduction. This means strong equity, positive communications, and protection against unforeseeable events.

Inflation stands out, though. 

A roadmap for brands to manage inflation

Six questions can help brands understand what inflation means to them.

• How has inflation affected individual categories?

A tracking shows that discretionary items like streaming services are under increasing pressure, people are more comfortable switching brands to save money than changing stores when energy and food prices are rising. Switching brands is a simpler way to save money than many brand promotion activities. It’s also worth it. A data by Worldpanel shows that almost every household could offset an increase in food costs by switching to store-brand products. A multi-country analysis of consumer-packaged goods data between 2008 and 2021 revealed that consumers could avoid inflationary price rises by switching to lower-priced store brands.

Solution strategy: Name brands need to invest more in providing consumers with ample reasons to purchase and not to lose share during inflation.

• How has inflation affected consumer attitudes and needs?

As mentioned, risk perceptions have increased. As a result, brand perceptions relative to price are becoming more demanding. From an examination of 40,000 brands worldwide and found that approximately one-third of them are too expensive relative to their brand equity.

Solution strategy: Brands should audit their brand equity. They must take remedial action to close any portfolio gaps or reset them to reinvest more effectively if necessary.

• What are the right spending levels for media, innovation, and strategy?

A forward-looking view is critical. When people are struggling, sales activation will fail.

Solution strategy: Brands must look ahead to the recovery that is always in sight. A year is a typical length of a downturn. The long-term consequences of short-term cuts in spending can be costly and time-consuming.

• How has inflation affected other values and priorities?

This is especially important for sustainability as it is a high priority and often comes at a higher cost. A revealing suggests that there is no decline in interest in sustainability, as long as brands can afford it during inflation. A multi-country study found a decline in sustainability commitment due to higher prices. Nearly one-third of those who have abandoned sustainable brands aren’t sure if they’ll switch back when prices drop.

Solution strategy: It is crucial to reinforce and renew the importance of critical values such as sustainability.

• What lessons can be learned from past economic dislocations?

A tracking clearly shows the importance of brand investment in downturns. It also shows the superior financial performance of brands with strong equity after and during the Great Recession. The tracking has quantified brand switching patterns during growth and recovery following the Great Recession. A 2020 research reveals higher expectations regarding brands’ societal responsibilities.

Solution strategy: Despite the pressure to reduce, invest in brands even during downturns.

• How can brands grow during a downturn?

Dynamism is the other side of disruption. Disruptions can trigger disruptive changes that shake up established business models and shift critical mass. There are always opportunities. For example, hybrid work, which has changed spending patterns and upended lifestyles in recent years, has created a new, unmet need to be targeted.

Solution strategy: Instead of being cautious, find ways to harness this dynamism.

Inflation has caused adjustment and reprioritization. Although it takes courage to get through, the upside of the situation is a jumpstart for recovery. Across the retail industry by elevated importance of maintenance management reports.

*data is available in public domain

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