Shopper Rebellion Against Higher Prices Helps Slow Inflation

After pushing prices to new heights last year, some companies are starting to pull back. It could be another sign that inflation is starting to turn a corner.

Conagra Brands Inc., which makes Hunt’s ketchup and Slim Jim meat sticks, raised prices 17% in its latest quarter, on top of two previous quarters, when it increased prices more than 10%.

The company said it is done boosting prices for now. Conagra’s sales volumes fell 8.4% for the quarter ended Nov. 27, which the company attributed in part to shoppers recoiling from the price increases.

Restaurant chain Hurricane Grill & Wings is trying a different means to the same end. Rather than lower prices to bump sales, it now sells a bucket-and-a-half of chicken wings for the same price as a bucket. The bonanza reflects the falling price of chicken wings, which surged last year, said Andy Wiederhorn, chief executive of franchising company Fat Brands Inc. Hurricane Grill & Wings is among its brands.

Executives at Constellation Brands Inc., which sells Corona beer, say they plan smaller price increases after higher-than-usual increases in October slowed sales growth.

Many companies raised their prices substantially last year to offset higher fuel costs and higher prices for ingredients, parts and labor. As fuel prices have dropped and pandemic supply-chain snarls have eased, some of those costs have come down.

That is a good sign for the economy. It suggests that some inflation in the past year resulted from extreme supply-demand imbalances brought on by the pandemic and the war in Ukraine and which are now fading.

Some companies raised prices not only because their costs were higher, but because they anticipated rising costs, according to a recent study. Those price increases, in turn, drove inflation higher.

The study, by economists at the Federal Reserve Bank of Kansas City, found that higher markups—the gap between what a firm charges and what it costs to produce an item—were a major driver of inflation in 2021.

They concluded that companies in some cases were raising prices in 2021 in anticipation of future cost pressures, rather than because of market power or outsize demand. Andrew Glover, a senior economist at the Federal Reserve Bank of Kansas City who was involved in the study, doesn’t expect prices to fall this year, he said, but he anticipates that the pace of increase will continue to slow.

Even if waning cost pressures give companies less reason to raise prices, that doesn’t spell an end to the inflation problem.

Fed officials worry that a host of other factors could sustain upward pressure on inflation. China’s reopening could boost global demand for commodities and energy, sending prices up. Unemployment, at 3.5%, is at a 53-year low. Fed officials fear tight labor markets could sustain higher wage growth, particularly for labor-intensive services.

Inflation, which fell from 9.1% in June to 6.5% in December as measured by the consumer-price index, is still far above the 2% range, which is the Fed’s target and around the level that prevailed before the pandemic. Price gauges that seek to filter out volatile prices showed inflation ran at between 4.5% and 7% in the past 12 months.