In the previous edition of the EY US Future Consumer Index, we explored whether the market drives consumers, and thus companies, to change, or if it is, in fact, consumers who are in the driver’s seat. It’s a question many companies are asking themselves now as geopolitical and market pressures mount. In this edition of the Index, we dig deeper into the consumer impact of one of today’s most impactful market dynamics: inflation.
Inflation is at its highest level in the US in 40 years. The push and pull of pent-up demand and constrained supply and labor have fueled a combustion of price. Consumer goods and retail companies were already feeling the squeeze from increased input costs for everything from energy and transportation to raw materials and commodities. As these input costs increase, so does price inflation, only to be further exacerbated by the volatile geopolitical landscape.
Now, as input costs rise faster than pricing increases, where do consumers fit in this picture? How are they responding to the inflationary pressures, and what does it mean for retailers and brands?
Will price dynamics settle consumer demand?
We’ve seen it on the grocery shelf, on our restaurant bill and at the pump as of late – a rise in the total cost of our purchases. And, while early incremental price increases may have gone unnoticed, the larger, and likely permanent, spikes in the cost of everyday essentials will likely temper the COVID-19-fueled, pent-up demand from consumers. Why?