It’s been a rough ride on the inflation train for US consumers these past few years, with our cost of living here in Los Angeles and many other places rising more than 30% by most reliable metrics. Sure, the published inflation rate is only around 3.5% annual increase as of mid-2024, but that metric is a rate of change, not a measurement in our real cost of living. The cost of necessities like housing, groceries, automobiles, gasoline and pretty much everything else has ballooned to levels unimagined before the Pandemic period.
Consumers are routinely experiencing sticker shock for restaurants, hotels, travel and other discretionary purchases. Insurance costs for cars, home and liability coverage has soared into orbit. The entire cost of living scenario seems unsustainable.
Now that I’ve related all the bad news you already know, how about some good news? Most people claim to like hearing good news but when they hear it are often quick to dismiss it. We are prone to Negativity Bias, so good news routinely gets ignored. (see my 2023 White Paper on Negativity Bias at KensingtonAMI.com)
Inflation is losing momentum. Price increases are going to be harder to push through now. Consumers, once flush with free Federal money during the Pandemic are becoming more cautious. The frantic grab for real estate, travel “experiences”, household and consumer goods and a variety of other items seems now to be slowing down, and we appear to be returning to more normal consumer behavior.
Tired of continued price increases for everything? You can do something about it. $9 for a cup of coffee? Say no thanks. $700 a night for a hotel room in Vegas? No thanks. $21 for a burrito, chips and drink? No gracias. The new car $12,000 over sticker? No thank you. A small bit of restraint goes a long way in conditions like this.
A bit of economics 101: inflation has two primary driving forces, “cost push” and “demand pull”. Cost push is when “upstream” commodity costs like food, energy, metals and other basic needs rise in price due to real or perceived shortages. “Demand pull” is when buyers display strong demand and bid up prices for all sorts of goods and services, demonstrating a willingness to pay higher prices. The inflation storm we’ve been through in the last 4 years has been a result of both cost push and demand pull forces.
Commodities prices, which make up the necessities like food and fuel which are at the core of cost push forces, have stabilized and while they are up a bit recently, they are down a lot from the panic conditions of 2020. It is the demand pull side that has been driving a lot of consumer inflation, and that is slowing down due to the “no thanks” pushback that is now manifesting in consumer behavior.
If we can collectively show a bit of restraint and push back against relentless price increases, especially for non-necessities, we can break the psychology of upward price momentum which has been propelling inflation higher in recent years. Hold back just a bit on the $9 coffee or the pricey hotel room and watch those prices stabilize.