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Inflation has been a persistent sore spot for American
consumers, overshadowing an otherwise healthy economy with a
strong job market. Prices at first rose fast thanks to supply
shortages caused by the COVID-19 pandemic, and then the rapid
recovery in consumer demand gave companies the power to keep
lifting them even as the supply environment improved.
Now, though, the rate of consumer inflation is slowing following
a series of large interest rate hikes from the Federal Reserve.
But U.S. shoppers still feel the pinch of the increases in the
cost of everyday goods over the last few years.
For instance, the inflation shock lifted housing and food costs
to such a degree they are notably higher today than would have
been expected had previous price trends held up. The inflation
updraft was not quite universal, though: Medical services costs
are now modestly below trend.
Recent quarterly earnings reports suggest Americans are reining
in spending on big-ticket purchases due to higher rates, and are
trading down to buy cheaper items because of costs. Against that
backdrop, government data also shows a measure of margins for
retailers and wholesalers has diminished sharply from very high
levels when inflation was at its worst.
That said, overall operating margins for S&P 500 Index
corporations - among the largest U.S. companies - remain above
the pre-pandemic trend, but it is not the case across all
sectors. Margins for companies providing communications services
- everything from mobile phone contracts to home entertainment -
are among the most elevated relative to the decade prior to
COVID.
The Biden administration has accused companies of "shrinkflation,"
that is, keeping prices the same while reducing the volume of
goods inside packaging - a boost to margins.
The Biden administration, along with several states, has argued
that market share concentration in some sectors is one force
limiting consumer choice and therefore aggravating inflation.
Indeed, the White House has intervened to try to stop a merger
between grocery giants Kroger and Albertsons. Several states,
mostly in the Western U.S., have joined the effort to kill the
deal.
(Reporting by David Gaffen and Dan Burns; additional reporting
by Savyata Mishra; editing by Jonathan Oatis)
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