Important reasons how Inflation affects people's buying Behavior

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How does Inflation changes Consumer Behavior?

Inflation has put consumers in an anxious, angry mood, even as the economic data shows confounding bright spots. Reality can be distinctive from perception. People’s beliefs are not logical, they are psychological. All of the changes in perceptions of inflation are certainly not centered on actual prices but on all of the changes that bring our attention. When there are lots of news articles on airfares going up 30% or gas prices going up 50%, that makes an impression.

Overall, Inflation is around 8.5% but it varies a lot across categories. To get a clear picture, economists look at a basket of commodities and what the prices were a year ago. The rest of us are really using subjective judgment based on the stuff that we know the price of which are the things that we buy frequently. Often that’s gas and groceries.

In terms of behavior changes in response to inflation, we see a variety. You look for what’s on sale which switches what you buy because different things might be on sale at different times. Another strategy is trading down, that is, you buy the store brand. Private label sales tend to go up with Inflation.

With some products, you postpone purchasing it. For others, you buy in smaller quantities or you buy in larger quantities because you think bulk buying is cheaper.

So ironically, Inflation can actually increase the quantity of your purchase, in the short run, because you’re going to Costco or Walmart. People also start moving around where they shop thinking that it’s going to be cheaper at Dollar stores.

You can’t make a general statement that people all buy less or trade down; it depends. For example, when people start eating less at Restaurants, they spend more on food products they’ll consume at home. Since “I’m not spending $20 on fish at a restaurant this week, I can go on to the store and buy not the cheapest fish, but one of the better fish”, You see these fascinating changes in behavior. Taken together, there’s a lot of complexity.