This year’s holiday shopping season is arriving with a bit of a mixed bag of economic news as companies and consumers gear up for one of the top times of year for spending.
The good: price increases are easing according to the most recent consumer price index, which tracks inflation. The report pegged inflation between October 2022 and last October at 3.2%, one of the lowest rates in recent months only beaten by this July.
The bad: higher prices spurred by more intense inflation over the past few years are starting to get to consumers. And easing inflation doesn’t alleviate the price increases that have already happened, said Nathan Jefferson, an associate economist at the Federal Reserve Bank of St. Louis.
“We have heard a lot more reports about concerns about affordability over the last few months,” he said. “The rate at which prices continue to go up has slowed a little bit, but prices are still continuing to rise and that’s putting real pressure on consumers.”
This comes as spending from consumers largely held up in the face of concerns of a recession or that it would just drop off, Jefferson said. But there’s a limit to how much people are willing to shoulder higher costs, he added.
“(Businesses) are not able to pass on the full extent of those input price increases because consumers are pushing back,” Jefferson said. “They’re just not able to afford additional price increases.”
Companies and brands are sensitive to this reality, responding with options to spread out the payment of larger items, said Carol Johanek, a marketing consultant and professor at Washington University's Olin Business School. But discounts also aren’t going anywhere either, she added.
“It’s what consumers, especially around the holiday season, are expecting,” Johanek said.
But lower prices aren’t the only thing that consumers care about, she said. More recently companies have staked clear positions on social issues, sustainability and others, Johanek said. “Brands have become much more engaged with consumers. It’s much more than just discounting their price,” Johanek said. “(They) realize that at this point the loyalty and identity of them is going to come in the relationship they build with (consumers).”
Companies also must contend with the broader trend of consumers shifting their spending to services and away from goods. Jefferson points to the transportation sector as an example, which some in the industry have said is in a recession.
“Travel, both business and leisure travel, has largely held up,” he said. “But freight transport, shipping goods and products across the country, across the region, that’s really slowed.”
Johanek sees this shift from consumers to spending on services driving companies to specifically tailor their products to individuals. She explained it's things like soliciting feedback or personalizing an experience, like Spotify’s Wrapped playlists that break down a person’s listening habits over the course of a year.
“Consumers are expecting more from brands and they’re getting it,” she said. “The brands that will be successful are the ones that can add value, which is the lower price with those unique benefits.”
