Inflation Impact Study

Inflation has been easing and is nearly back to normal. Yet, Americans’ perceptions of inflation have not really shifted. There’s a lingering view that prices are still out of control. Why is this? Well, first, inflation is cumulative. Even if prices today are rising moderately, they come off very strong increases. In that context, lower inflation means little. Take chicken as an example. So far this year, chicken prices in grocery stores are up by about 0.9% on an annual basis. Not too bad! But that 0.9% increase follows a 28.9% increase from 2019 to 2023. So, the cumulative increase is more like 29.5%. This brings us onto the second point of consumer psychology. Most people, in their heads, hold at least a vague sense of what things should cost. This, as the New York Times recently explained (link to article in comments), is known as the reference price. Today there is a humungous gap between reference prices and actual prices. Most consumers are still living in the price world of 2018 or 2019. That’s not really surprising as pre-pandemic, inflation was incredibly stable and created an embedded sense of what things should cost. Over the summer we asked consumers on our panel what they thought things should cost across various categories and compared it to actual average costs. In grocery, people think prices should be 28.5% lower than they are. In household care products, the gap is 25.3%. The gap is largest in essential products. There's higher inflation here to start. But because these are more frequent purchases people notice price changes and have a better understanding of what prices used to be. They’re also, very often, necessity buys rather than enjoyable discretionary purchases, so there’s likely more resentment of higher prices. Interestingly, in gasoline, perceptions of what prices should be run lower than the actual inflation rate. This is likely because gas prices have always jumped around, so reference prices are all over the place. The key thing here is that there is a divorce between actual data and how people feel. It is taking some time for people to psychologically adjust to inflation. #retail #retailnews #inflation #prices #economy #consumers

Two major disruptions We have two major disruptive trends underway: 1. Measures of economic policy uncertainty, notably trade policy, have spiked. 2. Consumer sentiment measures reveal a surge in inflation expectations. Why do we care and what could they mean for the overall economy? First, let’s look at uncertainty. Heightened levels of uncertainty make us anxious. It is a basic human instinct to pull in or freeze when you do not know what is next; it is paralyzing. Economic research reveals that reticence. Firms and households tend to delay big investment and spending decisions. Banks are more cautious in their lending decisions, which amplifies the chilling effect on the overall economic activity. The pandemic represented an extreme case of uncertainty, until now. Global policy uncertainty measures spiked above the peak we saw during the pandemic. However, the fear of contagion - its own form of uncertainty - prompted firms and households to avoid or cancel high density forums and places of contagion. Employment plummeted by 1.4 million jobs between February 15, 2020 and March 14, 2020. The largest losers were leisure and hospitality and dental offices. That is prior to one country going into lockdown. Now, let’s turn to inflation. Recent consumer sentiment readings show a sharp spike in inflation expectations since December. That suggests that inflation expectations are not as well-anchored post-pandemic as they were pre-pandemic. We had a hard time getting up to the Fed’s 2% target in the 2010s; now we cannot seem to get down to it. We now know what a blistering bout of inflation is like and are faster to expect prices to increase in the face of a shock than in the past. That muscle memory is a dangerous and self-fulling prophecy for inflation. It both enables firms to raise prices with less pushback by consumers and can trigger hoarding. The scramble to buy eggs in the wake of price hikes due to the bird flu is a good example. Eggs are the largest source of inexpensive protein for households. Their surge in price has prompted a run on grocery stores and rationing by some major chains. That pushes prices up even faster and prompts rationing. It is reminiscent of what we saw toilet paper and hand sanitizer as the quarantines took hold. If sustained, the two disruptions together could be consequential. The worst case scenarios get us to stagflation. That is when inflation and unemployment rises in tandem. We have not seen a serious bout of that since former Federal Reserve Chairman Paul Volcker broke the back of inflation with two brutal recessions in the early 1980s. It would be optimal to avoid a repeat of that outcome today. Understatement.

Developing Asia and the Pacific’s economic ascent is being severely tested. The conflict in the Middle East is disrupting trade and energy markets. For a region heavily reliant on imported energy, rising prices are feeding inflation and tightening financial conditions.    The impacts remain extremely uncertain and will depend on the duration and trajectory of the conflict. Our latest Asian Development Outlook estimates that growth could slow substantially in the case of a prolonged conflict or further escalation.    The policy response is crucial. Targeted, temporary support can protect vulnerable households and businesses without derailing fiscal health. Clear monetary policy is essential to keep inflation expectations in check. And in this fragile global landscape, deeper regional cooperation is needed more than ever. Strengthening energy connectivity, building more resilient supply chains, and streamlining trade will be critical to reducing vulnerability and unlocking new opportunities. The Asian Development Bank (ADB) strongly supports all such efforts. #ADO2026 sets out these priorities and offers insights to help the region navigate current uncertainty with confidence: https://lnkd.in/gFx9B77r

Inflation-weary consumers are facing some new headwinds with word that companies are starting the year by passing through new price increases. The Wall Street Journal reports that after a period of holding the line and leaning on discounts late last year, many businesses are raising prices again, pointing to higher tariffs, labor costs, and health-insurance premiums as major drivers. This “real world” inflation doesn’t show up all at once in a single CPI print as we saw last week. But the risk is that it keeps pressure on the everyday cost of living over time. What does it mean for consumers? Even as inflation has cooled from its peak, affordability challenges are not going away. Price levels are broadly high and going higher, with the CPI up 26% from January 2020. New price hikes on clothing, appliances, and household goods can make it feel like the finish line keeps moving. In other words, disinflation is welcome, but it doesn’t automatically translate into relief when the items you buy and replace in normal life start climbing again. For the Federal Reserve, this is exactly the kind of backdrop that supports staying put with its benchmark short-term rate. The Fed can tolerate some “one-time” price adjustments, but policymakers worry about what comes next: higher input costs leading to broader price increases, then feeding into wage demands and service-sector inflation. That is how inflation becomes sticky. If companies regain pricing power, it makes the Fed less likely to cut rates quickly, because the risk is that inflation stops cooling and settles in above target. This is also why affordability is likely to remain front and center in the public conversation this year. Look for the president to try to address it in next week’s State of the Union. Ahead of this year’s mid-term elections, as voters talk about the economy, they don’t talk about the CPI. Instead, they mention whether the costs of groceries, housing, insurance, and basic household items are or are not manageable. And if businesses are raising prices again, that affordability pressure becomes harder for elected officials to ignore. Bottom line: inflation progress has been real; price levels generally continue to rise. The next phase may be choppier. Consumers should plan for a world where prices rise more slowly than they did in 2021–2022, but where affordability still feels tight, and rate cuts, if they come, are more likely to be gradual than rapid. Our advice for individuals and households is to prioritize paying down high-cost debt, focus on boosting income where possible, and to prioritize saving for emergencies while utilizing high yield savings accounts.

Botswana’s Devaluation: A Calculated Response to a Shifting Global and Domestic Landscape - My Two Cents as a Mathematics of Finance Graduate The Bank of Botswana recently devalued the pula by 2.76%, bringing the exchange rate to 13.35 against the USD. At first glance, this might seem modest, but in a nation so tightly linked to global trade, especially in diamonds, beef, and textiles, the implications run deeper than the numbers suggest. So, why now? Let’s unpack the economic pressure cooker behind the move: 1. Falling Diamond Revenues Botswana’s fiscal and export performance is still highly reliant on diamond sales. Global demand for luxury goods has softened amid tightening global monetary policies and geopolitical uncertainty (think: Russia-Ukraine, Red Sea disruptions, and slower-than-expected recovery in China). With De Beers sales softening, the pula has come under pressure. 2. Dwindling Foreign Reserves The Bank of Botswana has been drawing down reserves to defend the currency and meet import bills, especially for essentials like fuel, medicine, and food. Devaluing the pula helps ease this drain by reducing demand for foreign currency and boosting local export competitiveness. 3. Inflation and Imported Costs A weaker pula means higher prices for imported goods. Expect rising costs in fuel, pharmaceuticals, and machinery in the coming months. This imported inflation will likely nudge up the headline inflation rate, potentially prompting future monetary policy tightening. What this means for households and businesses: • For households, budgets will tighten. Higher fuel and transport costs could cascade into food prices, schooling expenses, and medical bills. • For businesses, especially those relying on imported inputs (manufacturing, retail, construction), margins may shrink. Some may pass on costs to consumers; others might delay expansion or rethink sourcing strategies. From a risk management perspective, this kind of environment underscores the importance of: • Scenario analysis • Interest rate & FX hedging • Liquidity planning Policy & Industry Response: • Financial institutions can step in to provide guidance, beyond credit, by offering practical exchange-rate risk training to clients and front-line staff. • Government & private sector collaboration will be key. Globally, we’re seeing a trend of currencies weakening against a resurgent dollar, driven by persistent Fed rate hikes and capital flows toward “safe” assets. Even the South African Rand has faced similar pressure. Botswana is not immune. This is not just a monetary policy adjustment, it’s a strategic recalibration in response to external shocks and internal vulnerabilities. If approached with coordination and foresight, it can help build resilience, stimulate local production, and reshape how we engage with the global economy. Let’s keep talking, analyzing, and most importantly, adapting.

Inconsistent Policies Fuel Market Disruptions in the Pulses Sector!! Inconsistent government policies in the pulses sector have led to severe market disruptions, fostering speculation, cartels, market manipulation, and diversion of subsidized materials meant for government schemes to open markets. This has distorted the pricing and availability of essential commodities for the general public. In January, it was evident that India would face an acute shortage of pigeon peas and chickpeas, along with some shortages of black matape. However, instead of consistent and predictable policies to address these shortages, the government has engaged in on-and-off policy maneuvers. Trade restrictions, such as stock limits and extensions of duty-free imports of yellow peas, have been implemented with short-term positive impacts on the market. But these knee-jerk reactions have caused long-term damage to the overall pulses trade, exacerbating price volatility and uncertainty. The pulses inflation has remained consistently in double digits. Pigeon peas, in particular, saw prices surge to last year's high of ₹130,000 per ton in June, despite the demand being at its lowest point. Speculators took advantage of the situation, driving prices up only to short them later. A similar pattern was seen with black matape, where prices spiked to over ₹110,000 per ton before dropping below ₹90,000. Now, the bulls are back in the pigeon peas market, and prices are recovering on a near-daily basis. Chickpeas followed a similar trajectory, with prices slowly inching up until June when they started moving up steeply from around ₹60,000. Given the current scenario, it's clear that prices are being manipulated by vested interests. There is no justifiable reason for pigeon peas to have reached ₹130,000 in June or chickpeas to be trading at ₹80,000 per ton now. With the festive season approaching and limited availability of pigeon peas and chickpeas in the market, prices are expected to surge further over the next couple of months. The only potential respite lies in the East African crop reaching India quickly, but even that faces challenges due to Mozambique's issues and Tanzania's new auction-based procurement system, which could delay shipments. Freight costs are also rising, and port congestion in East Africa may further complicate the situation. To prevent such manipulation in the future, it is crucial that government policies remain consistent and transparent for a certain period. Policies should not act as shocks but be driven by clear indications. Furthermore, it is essential that the government's interventions in the open market, such as OMSS or retail-side interventions like Bharat Dal and other pro-poor distribution schemes, are managed well to avoid leakages. Consistent and transparent policies, combined with well-managed interventions, are the need of the hour to stabilize the pulses market and protect consumers from price manipulation and supply disruptions.

The CPI can tell you what’s happening on average. But it can’t tell you what it feels like to buy groceries in Greensboro, grab lunch in Austin, or stock up on essentials in Memphis. That’s the gap we’re trying to fill with DoorDash’s latest State of Local Commerce update — our first quarterly look at how prices are actually moving across cities, categories, and everyday purchases. A few things that stood out to me: 1. The grocery story is improving. Our Breakfast Basics Index — the price of three eggs, a glass of milk, a bagel, and an avocado — is down more than 22% year-over-year as of March 2026, largely due to egg prices normalizing after last year’s spike. But whether you're in Greensboro, NC or Gilbert, AZ can be a significantly different price at checkout. 2. Restaurant prices are stabilizing Restaurant price growth overall is in a similar range (+3.2% year-over-year), suggesting a more moderate, steady trend. That tracks slightly below the latest food-away-from-home CPI released earlier today (3.8% year-over-year). 3. Everyday essentials are… essentially flat. The items people buy every week — diapers, detergent, toothpaste — are down slightly (-0.3% year-over-year). Not dramatic, but important: it means one part of the household budget isn’t getting squeezed further. 4. There is no single “economy” right now. There are thousands of local ones. A cheeseburger meal costs $12.47 in Lincoln, NE. Breakfast basics are cheapest in places like Greensboro, NC ($2.60). Everyday essentials are most affordable in Memphis, TN ($51.93). Where you live still shapes what you pay, by a lot. This is why local data matters and why we're committed to routinely sharing what we see across the DoorDash platform as part of our State of Local Commerce. Check out the data for yourself:  https://lnkd.in/eNyB-xPt

Inflation fear pushes consumer sentiment to a record low Just as we predicted in our demand destruction analysis, sentiment took a historic dive one month after the war began. This is not an overreaction—it reflects an unprecedented disruption to energy supply not seen in decades. Consumers are right to be worried when the Strait remains effectively closed to most ships. That disruption won’t just affect energy prices; it will spill over into food, transportation, and other key commodities. The ceasefire deal certainly reduces the severity for now, and we should see a rebound in sentiment in the next release. But we shouldn’t expect the road to normalization to be quick or easy. Prices won’t come down as fast as they went up. On top of that, inflation expectations have skyrocketed. Even if the conflict de-escalates today, we are likely looking at at least three months of elevated inflation fears among consumers. And that’s a big “if”—there’s still significant uncertainty around how the next two weeks of the deal will play out. The top priority now is reopening the Strait. Otherwise, further demand destruction is likely in the months ahead—and that’s where the real risk lies.

Consumer Sentiment Collapses as Inflation Expectations Surge The U.S. consumer is growing more pessimistic, and today’s data makes that clear. The University of Michigan’s Consumer Sentiment Index fell sharply to 64.7 in February, a 9.8% decline from January and a 15.9% drop from a year ago. Every major component of the index worsened, with consumers reporting weaker confidence in both current conditions and future expectations. The deterioration was widespread across income and age groups, signaling a broad-based decline in optimism about the economy. The timing of this drop is significant. Consumer sentiment had been improving in recent months, and businesses were hoping that momentum would continue into 2025. Instead, today’s report shows a steep reversal, with concerns about personal finances, economic conditions, and inflation weighing on households. One of the biggest drivers of this decline was a 19% plunge in buying conditions for durable goods, largely due to fears that tariffs will drive up prices. Consumers are already adjusting their behavior in anticipation of higher costs, a trend that could have ripple effects across industries. At the same time, inflation expectations are rising at an alarming rate. The one-year inflation expectation jumped from 3.3% to 4.3%, the highest since November 2023. The five-year outlook rose from 3.2% to 3.5%, marking the largest month-over-month increase since 2021. These shifts matter because inflation expectations influence real economic decisions. If consumers believe prices will continue rising, they may change their spending habits, demand higher wages, or delay major purchases. This, in turn, can complicate the Federal Reserve’s path forward on interest rates, as the central bank has been looking for stable inflation expectations before considering rate cuts. Today’s report also aligns with the other economic data we’ve seen this morning, reinforcing a broader theme of economic uncertainty. The services sector contracted for the first time in over two years, existing home sales fell sharply, and now consumer sentiment has cratered. The combination of these factors suggests that momentum in the economy may be shifting. If consumer confidence continues to deteriorate, spending could slow, business investment could weaken, and economic growth could stall. At Havas Edge, we track these shifts closely because consumer confidence is one of the most important leading indicators of economic behavior. When sentiment turns, spending patterns follow. Understanding these changes early allows businesses to adapt, ensuring that strategies remain relevant in an evolving market. #ConsumerSentiment #Inflation #Economy #FederalReserve #ConsumerBehavior

Consumer confidence is not a soft metric. It is a canary in the coal mine. The University of Michigan's preliminary April consumer sentiment reading fell to 47.6, down from 53.3 in March and below analyst expectations. If that number holds, it is the lowest reading in the survey's 70-plus-year history. The previous low was 50, recorded in June 2022, when inflation was crushing American households. What matters here is not just the number. It is the mechanism. Consumers do not wait for economists to certify a downturn. They feel risk firsr, and then they act on what they feel. Year-ahead #inflation expectations jumped from 3.8% to 4.8% in a single month, the largest surge since April 2025. That is not a prediction. It is a behavior change already in progress. #Consumers who expect higher prices start spending differently today. Notably, 98% of interviews were conducted before the April 7th cease-fire announcement. The final reading may improve. But even that possibility reinforces the broader point: consumer psychology is now exquisitely reactive to geopolitics. A conflict thousands of miles away can reshape Main Street demand almost overnight. For business leaders, this is the lesson: demand is no longer shaped only by prices, wages, and employment. It is shaped by perceived stability. And confidence, once lost, does not return on a schedule. In #retail, especially, that matters. Consumers may keep spending for a while, but they change how they spend long before they stop. They trade down. They delay. They tighten what feels necessary. The wallet closes in stages, not all at once. I help lead marketing and brand strategy across 25+ brands and tens of thousands of points-of-sale. What I'm watching right now is not whether consumers will stop buying, it's the early shift in what they value most and what they're willing to pay full price for. That shift is already underway, and it will hit discretionary categories first. The signal is in the sentiment data. The question is whether we're reading it early enough to adjust. The market loves hard #data. But #sentiment is often where the future first clears its throat. The Wall Street Journal #marketing #brands #shopping #ConsumerBehavior