Shoppers, Enjoy Those Discounts While They Last

How will we know that inflation is finally bubbling up? This year a truck driver shortage raised freight rates, and consumer goods companies began passing on those higher costs to consumers. Last Friday’s jobs report, with wage growth now at its fastest rate since 2009, is another sign. Still another, which may become more apparent as companies begin to report third-quarter earnings over the next month, is a reduction in discounting on big-ticket items, as General Motors and a couple of home-goods companies just reported.

Economists like to think about inflation in terms of mathematical models and curves on a graph, where faster economic growth and lower unemployment should lead to higher inflation. But that doesn’t say much about how actual businesses responsible for setting prices operate. For that, we have to watch what companies are doing and saying. For low-priced goods that consumers buy all the time, like diapers, the strategy might be just passing on price increases as costs rise. But for higher-priced goods that consumers buy infrequently, and where discounting and incentives come into play more often, reducing incentives is functionally the same thing as raising prices, and that seems to be the strategy for now.