Let’s say that you saw the price of Skippy peanut butter, Tropicana orange juice, and Quaker oatmeal went up. Would you be concerned about inflation?
In a recent paper, researchers from Yale and the University of Chicago said it is a bit more complicated than that. Stores, they said, were very aware that certain consumers tended to be “loyals” while others were “shoppers.” The “loyals” bought the same brand, no matter what. “Shoppers,” by contrast, were bargain hunters. If Peter Pan peanut butter were on sale, they would not only buy it (and abandon Skippy), but they would also stock up with extra jars.
Knowing the character of their clientele, supermarkets adjusted prices to optimize purchases from “loyals” and “shoppers.” They made sure, for example, that sales were carefully scheduled so that they would minimize lost revenue from their “loyals.”
Fluctuations in price, then, do not only reflect increasing costs of production or changes in the money supply. Instead, they might just be an example of business strategy.
The Economic Lesson
Consistently, price watchers from the Bureau of Labor Statistics monitor specific items in a “market basket” of goods and services to give us a picture of where prices are heading. The result is the Consumer Price Index (CPI). Through Social Security payments that are based on annual changes in the CPI and monetary policy decisions, the CPI can have considerable impact.
But, what if, as these Yale and Chicago researchers suggest, price changes reflect a complexity that is not currently recognized by the CPI?Read More