A recent New York Federal Reserve survey has investigated retail price inflation. Their survey of 700 businesses across New York, Atlanta and Cleveland found that strength of customer demand outranked all other factors that companies weigh when setting prices, including steady profit margins and overall inflation.
Businesses are basically rising prices until demand declines. More than 82% of businesses surveyed said demand factored into their pricing decisions, while only 52% of businesses said they take the overall rate of inflation into account when setting prices.
John Zhang, a professor of marketing at the Wharton School at the University of Pennsylvania said, “As a consumer during inflation, you know the costs for companies are increasing, so, therefore, you become more receptive to a higher price. Approval of price increases could fuel even higher pricing in the future — a cycle that can be hard to break.”
Mr. Mac’s mac and cheese restaurant in Manchester, New Hampshire tried boosting prices a little at a time to keep up with inflation in 2021, but it wasn’t enough to cover the cost increases to the business, vice president of operations Mark Murphy told CNN. Fearing customer backlash, the restaurant accepted smaller margins instead of pricing out their diners.
When the business finally hiked prices, Murphy said the decision was “painful.”
“We were looking at our sales and our orders daily, and we were checking every review to see what people were saying,” Murphy said. “It was very scary.”
Despite those fears, Mr. Mac’s elevated prices did not cut into business.
“What we ended up finding was customers may not have been happy about it, but they were not surprised. I think they kind of understood that prices are increasing. They see it everywhere they go,” he said.
Murphy said the restaurant has since raised prices more than once to keep up with inflation.
We've run out of other people's Social Security taxes needed to subsidize our low income tax rates.
