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The Cheapflation Epidemic: A Global Phenomenon
In 2022, author, cook, and anti-poverty campaigner Jack Monroe triggered a "mansplaining epidemic" by suggesting that the cost of UK value-brand groceries was rising faster than average food prices. The Office for National Statistics (ONS) responded by revising its survey, only to later acknowledge that it didn’t see a problem. However, two years on, its main finding looks plain wrong.
New Evidence Emerges
A recent study by Alberto Cavallo and Oleksiy Kryvtsov, published by the National Bureau of Economic Research (NBER), provides "ample evidence" that cheapflation is a global phenomenon. The study analyzed grocery prices during the recent inflation surge and found that prices of cheap goods grew between 1.3 to 1.9 times faster than the prices of more expensive brands.
The Data
The study used a massive dataset of over 2.1 million products on sale at 91 multichannel retailers between 2018 and 2024. This allowed the researchers to measure whether shoppers could save money by choosing products that were on sale that week.
Shoppers Save Money
For those with time to spare and no brand loyalties, there were savings to be found. Grocers pushed through price hikes on regular items during the surge but kept their promotions aggressive, with discounts having only a minor effect on overall inflation.
Value Brands vs. Regular Brands
The study found that value brands, which tend to be discounted only when their use-by date is looming, rarely offered significant savings. In fact, by switching to "cheaper" brands alone, shoppers’ average unit price increased by 2.8 percentage points.
Cheapflation Trends
The researchers explained that cheapflation trends are easy to understand. On the supply side, discount brands are exposed to global supply chains and input commodity prices with not much of a margin buffer to absorb rising costs. On the demand side, rising inflation and falling real incomes mean spending shifts towards cheaper products. Pandemic-era stimulus aimed at low-income families added to this increased relative demand.
Conclusion
In conclusion, the evidence suggests that cheapflation is a global phenomenon, with prices of cheap goods growing faster than those of more expensive brands. Shoppers who take advantage of discounts can save money, but those who switch to value brands alone may end up paying more. As the ONS revises its analysis, it’s essential to consider the bigger picture and the factors driving inflation.
FAQs
Q: What is cheapflation?
A: Cheapflation refers to the phenomenon where prices of cheap goods and value brands increase faster than those of more expensive products during times of inflation.
Q: What did the ONS find in its study?
A: The ONS initially found that prices of value-brand groceries were rising slower than average food prices. However, the study’s methodology has been criticized, and the ONS has since revised its findings.
Q: What did the NBER study find?
A: The NBER study found that prices of cheap goods grew between 1.3 to 1.9 times faster than the prices of more expensive brands, providing evidence that cheapflation is a global phenomenon.
Q: Can shoppers save money by choosing discounted products?
A: Yes, shoppers can save money by taking advantage of discounts. However, those who switch to value brands alone may end up paying more.
Q: Why do cheap brands tend to increase in price faster than regular brands?
A: Cheap brands are exposed to global supply chains and input commodity prices with not much of a margin buffer to absorb rising costs, making them more vulnerable to price increases.
Author: www.ft.com
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