Why Companies Are Raising Prices Even as Consumer Confidence Wanes
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What is the main topic discussed in this episode?
Here's your Money Briefing for Tuesday, May 23. I'm J.R. Whelan for The Wall Street Journal. We hear every month that inflation continues to fall.
Why are companies still raising prices even as inflation moderates?
That coupled with signs that the economy may be headed toward a recession. And yet many companies are still raising prices.
Consumers are having to make choices, right? We're no longer in the kind of free spending days that we experienced as we just came out of the pandemic. And consumers are really having to decide, you know, how much they need or want something.
We'll talk to Wall Street Journal reporter Suzanne Kepner about why companies are raising prices and the risk they face of eventually turning away consumers.
What is driving consumers' lowered confidence and spending hesitancy?
That's after the break.
Consumers are digging deeper to pay for everything from diapers to food to handbags, even while we hear that the inflation rate ticks lower every month. Wall Street Journal reporter Suzanne Kappner joins us to explain why companies keep raising prices. So Suzanne, inflation is considerably lower than where it was a year ago, but consumer confidence has also come down. Why are consumers feeling that way?
So there are a lot of signs in the economy that point to a potential recession. We've seen a lot of layoffs, especially among white-collar jobs. And the pace of inflation over the past few years has really crimped consumers' budgets. We saw in some recent spending data from the government, consumers are dipping more into their savings to make purchases.
So with consumers feeling more skittish compared to several months ago, why do companies feel comfortable still raising prices?
The companies that are able to continue raising prices are selling things that either consumers really need or really want. So it's either a sign of necessity or a sign of brand heat. Like your brand is so hot and consumers really want what you're selling, they're willing to pay up for it.
What are some examples of that?
Well, Kate Spade has this purse that's in the shape of a dog that costs $500.
Which products can still command higher prices and why (necessities vs. brand heat)?
It is one of their best-selling handbags. And for a lot of people, that's not an inexpensive outlay, $500. For what is a really very novelty bag, it's certainly not a necessity. But they are, you know, selling like hotcakes.
Where are we seeing this in terms of household products?
Well, Procter & Gamble said recently that consumers continue to spend, even though it raised prices about 10% in the last quarter, and they're spending heavily on things like pampers and tie detergent and stuff they really need.
What kind of a situation is that putting consumers in?
Consumers are having to make choices, right? We're no longer in the kind of free spending days that we experienced as we just came out of the pandemic, you know, a year or two ago. And consumers are really having to decide, you know, how much they need or want something.
Now, over the past two years, we've often heard companies blame things like labor costs and supply chain constraints as reasons for them continuing to raise prices. Are those things still factoring into the price hikes?
Well, certainly, all kinds of costs continue to be elevated as inflation remains above pre-pandemic levels. But we are seeing some signs that the price increases might be going beyond covering those higher costs. In the first quarter, we had a lot of companies reporting margins that were growing for the first time in about six quarters, which suggests that the price increases are greater than their cost increases.
How much of this has to do with as long as consumers are willing to pay the price, companies will continue to charge that price?
Well, I think it's, you know, what the market will bear and it's sort of the way capitalism works, right?
How are higher costs like labor and supply chains affecting price hikes now?
As long as consumers are willing to pay the price, companies are going to charge that price and they're going to keep raising prices until they kind of see some pushback from consumers.
But does it seem like this is almost a dangerous numbers game for consumers? Are these companies running into the potential danger of reaching a tipping point where consumers are just going to balk and walk away?
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:02–0:13
2
Why are companies still raising prices even as inflation moderates?
0:13–0:43
3
What is driving consumers' lowered confidence and spending hesitancy?
0:43–2:13
4
Which products can still command higher prices and why (necessities vs. brand heat)?
2:13–3:51
5
How are higher costs like labor and supply chains affecting price hikes now?
3:51–5:02
6
When do companies risk hitting a tipping point where consumers push back?
5:02–5:28
7
What indicators should we watch to see if consumers will cut back further?
5:28–5:37
Speakers
2 identifiedMore from WSJ Your Money Briefing
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