How Inflation Affects Consumer Spending
Inflation is often misunderstood and misrepresented, which has serious policy ramifications.
High inflation causes significant economic stress, and it can even lead to economic decline.
Many people fear it, but they shouldn’t.
It’s not the end of the world, and there are lots of things governments and individuals can do to help keep prices down.
In this article, we’ll discuss the importance of paying attention to consumer price index (CPI) inflation, how it differs from other measures of inflation, and what you as an individual can do to reduce your exposure to it.
The Role Of Inflation In Economic Decline
In the mid-to-late 1970s, inflation was a major political issue. In the United States, in particular, the public was largely unaware of the true nature and causes of inflation, which made the numbers even more horrific.
People were led to believe that inflating the currency would help citizens get their ‘fair share of the national wealth.
This was certainly false; in reality, it was causing economic damage.
After experiencing a wave of inflation during this time, many American families were burdened by unprecedented debt, and they saw their retirement savings and house values plummet.
For decades, the United States has been battling high inflation, and this has prevented the country from enjoying sustainable economic growth and progress.
Not All Inflation Is Created Equal
In the recent past, the world has seen a surge in the number of well-known economists who have come out against high inflation.
While this may seem like a small handful of individuals, their arguments against inflation carry a lot of weight.
One of the most cited examples of high-profile economists decrying inflation is Princeton’s William H. McRaven.
In a 1962 paper entitled ‘The Role of Cost Control in Stabilizing the Dollar’, McRaven wrote:
- “In the short run, rising prices can be beneficial to an economy if they provide an incentive for producers to increase their efforts. But in the long run, they are harmful to the economy if they lead to increased costs of living.”
- “Inflation is usually harmful because it forces individuals to change their consumption patterns. At first, higher prices lead to more saving, but as the inflation rate rises, individuals begin to spend more cautiously.”
- “There are times when price increases are desirable because they reflect a change in the market value of a commodity…But the problem is that these same price increases are then often passed on to the consumer. It’s an unstable economic situation that can lead to overall inflation.”
How Is Inflation Measured?
Inflation is usually measured by comparing a country’s price levels with those of other emerging nations.
In some situations, inflation can also be measured by comparing the price of a product or service with that of other countries.
For example, the price of crude oil and natural gas can be used to gauge inflation in the energy sector, while the cost of pharmaceutical products can be used to determine inflation rates in the healthcare industry.
It is important to remember, however, that these measures of inflation take into account different factors.
While they may show a similar trend, they are not always indicative of one another.
For instance, if the U.S. dollar declines in value against other major currencies, prices seen in the United States may actually decline, although not by much.
This is due to the fact that other countries will often maintain a strong dollar as their national currency, which helps keep the cost of imports low.
This, in turn, helps maintain inflation in those countries. An example of this would be the recent depreciation of the Turkish lira against other major currencies.
As the lira dropped in value, many imported goods became much more affordable for Turks. This, in turn, helped bring down overall inflation in the country.
Why Is Consumer Price Indexation Important?
While other measures of inflation may include input cost inflation – the rise in the cost of raw materials or fuel – in the consumer price index (CPI) measure, price increases are mainly attributed to higher prices charged by manufacturers.
If a product’s retail price remains the same while its wholesale price goes up, that generally means the cost to the manufacturer has increased. In other words, wholesale inflation is responsible for most, if not all, of the increase in the CPI.
This is why it’s often referred to as ‘manufacturing inflation’ – the cost of raw materials and energy is usually passed along to the consumer in the form of higher prices for imported and domestically produced goods and services.
If a high percentage of product costs are rising due to higher energy prices or material costs, economists say that this is likely the result of an oversupply in the marketplace.
In other words, there are simply more goods available than there are consumers who want to pay for them.
This is why the Federal Reserve often takes measures to offset inflation by increasing the supply of money and credit – two important factors in determining the cost of any good or service.
How To Do Digital Marketing In A Recession
You may be wondering if there’s a chance you can get away with not spending money on digital marketing, during a recession.
Don’t worry, there is!
You see, during these times, you can actually get very creative with the methods you use to attract potential customers to your brand.
Believe it or not, some of the most effective (and free) strategies are even those that you could have tried before the economy went south.
So, if you’re in a bit of a quandary as to whether or not to continue investing in your digital marketing efforts, fear not–you can find success, even during these challenging times, as long as you stay creative.
Cut Back On The Boring Stuff
Boring, routine tasks such as social media posts and website content may not seem essential in tough times.
But believe it or not, these things can be important, if executed correctly. So, it’s a good idea to cut back on the less essential stuff and focus more on the things that can really make a difference.
This is because having read material from multiple sources, online news publications, and blog posts, customers have the opportunity to form a more complete view of your brand or product than a simple tweet or Facebook post could ever provide.
Now is the time to focus on growing your email list, engaging with your readers, and creating valuable content that will keep them coming back for more.
All of these things contribute to a thriving business–even in a recession.
Reinvent The Wheel
If you’re reading this, you’re most likely already aware of the importance of digital marketing, in general, in today’s ever-evolving economy.
But did you know that sometimes, the best way to succeed is by actually going back to basics and doing things differently?
In these difficult times, it’s important to have a clear vision of what your company stands for, and how you can be of help to your customers.
By understanding this, you can put your efforts to better use, and more effectively market your brand.
Pay Attention To Search Engine Optimization (SEO)
If you’re not sure what SEO is, don’t worry–you’re not alone.
Many marketers are oblivious to SEO, and the damage that can be done by not paying attention to it.
However, those who do take the time to educate themselves on this subject matter, and use it effectively, can see huge returns on their investment.
Make Sure You Have The Right Team
If you want to achieve greatness, you’ve got to have the right people. The same goes for successful digital marketing efforts.
Having the right team is the key to achieving great results, whether you’re in a recession or not.
If you’re looking for a team of individuals who can help bring your vision to life, and teach you and your team the ropes of digital marketing, consider reaching out to the experts at Vertical Response.
Monitor The Competition
In the ever-changing world of digital marketing, keeping tabs on your competitors is essential.
More importantly, you must do this continuously, and more effectively, as the competition changes with every new season and every new update to popular search engines and social media platforms.
The ability to monitor your competitors is called competitive analysis, and it’s one of the most valuable tools in your virtual marketing toolbox.
With competitive analysis, you can keep an eye on what your competitors are doing, and see how you can better position yourself to offer the same or similar products or services to your target audience.
You can also use this as a means of providing your customers with additional value and helping them locate your product or service if they’re not yet aware of your company or brand.
In these trying times, it’s important to look at your competition closely, see what they’re doing, and find ways to outmatch them.
This will not only give you a competitive advantage, but it will also allow you to establish yourself as an expert in your industry.
Always Be Ready
Being ready is an essential part of any entrepreneur’s or business owner’s toolkit.
Being ready means anticipating situations, and being prepared to deal with them effectively.
When it comes to marketing, being ready means constantly looking for ways to improve your campaigns, and being open to new ideas and new technology–no matter how much you may resist at first.
Being ready is an important part of being innovative; always be ready to embrace new ideas and new ways of doing things.
Being ready is also an important part of having a successful business–it means you’re prepared for the ups and downs that come with running a business. Always be ready!