Companies Are Slashing Prices to Get Consumers Back

Big-Box Discounts

Americans could finally get some relief from their bills on groceries and other necessities as Amazon Fresh (AMZN), Target (TGT), Walmart (WMT), and others recently announced price cuts on thousands of items.

Walmart said it had cut prices on nearly 7,000 items. Then, last week, Target said it was lowering prices for 5,000 commonly purchased items from national and Target-owned brands, including milk, meat, coffee, diapers, and more.

Shortly after, Amazon Fresh said it would slash prices on 4,000 rotating items, some by up to 30%. The deals will be available online and at the company’s grocery stores.

While this sounds great for consumers who have struggled with high inflation of the past years, it’s telling us something gloomy about the economy.

Bringing Back Buyers

While the costs of living, including housing, and car and home insurance have risen, prices for grocery items have only climbed 1.1% year-over-year in April. But that doesn’t mean food is cheap. Go back a little further and you’ll see that grocery prices skyrocketed a whopping 21% from January 2021.

The U.S. economy relies on consumers to spend, which is why confidence measures are a big deal for economists. But confidence in the economy tumbled in the latest University of Michigan consumer sentiment index , and that could be bad news. Last week, a survey found that more than three quarters of U.S. consumers think of fast food as a luxury. Consumers who worry about their economic and financial future may delay big purchases or tighten the belt on necessities, which trickles down into companies’ bottom lines and the economy as a whole.

In an earnings call on May 16, Walmart said its customers are cutting discretionary spending, instead focusing on necessities like groceries. And everyone from McDonald’s (MCD) to Aldi is touting new budget-friendly prices.

Relief at Last?

While these cuts should be welcomed by consumers, food prices are generally pretty sticky. That means people shouldn’t expect a return to pre-pandemic prices anytime soon, or ever.

In other words, there is no guarantee that Walmart, Target, and Amazon Fresh won’t raise prices again in the future. For consumers who want long-lasting savings on necessities, a grocery budget, choosing store brands, bulk buying, and loyalty programs can help.

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