See Inflation, Recession Fears Have Some Holiday Shoppers Trading Down by Suzanne Kapner of The WSJ.
One of the shift factors for demand is the price of substitutes. For example, when the price of pens increases, the demand for pencils will increase.
Excerpts:
"Seventy-two percent of consumers plan to look for less expensive alternatives this holiday season as a result of inflation, according to a survey of 2,200 U.S. adults by Morning Consult, a research company.
With inflation at a four-decade high, consumers have been trading down to less-expensive groceries and other necessities for the better part of this year. Now, with the stock-market plunge of recent months further eroding the wealth of middle- and higher-income households, the penny-pinching is extending to more discretionary purchases."
"U.S. consumers slowed their spending on luxury goods in recent months, according to credit-card data from Mastercard Inc., Citigroup Inc. and BofA Securities Inc. Spending over the summer and into September fell from the same period a year earlier, after posting double-digit percentage gains for most of the past two years.
Thomas Chauvet, who heads Citi’s Europe luxury goods equity research, said the slowdown was driven by a deceleration in transaction values, suggesting that even affluent consumers are trading down. According to BofA Securities, middle-income consumers, those making $50,000 to $125,000, slowed their spending the most.
Marc Metrick, chief executive of Saks, the online platform of the Saks Fifth Avenue brand, said customers with household incomes of about $100,000 are still spending but at a slower rate. These customers spent 20% more at Saks in recent months compared with the same period in 2021, but that is down from the 40% increase during the first six months of this year. As a result, Saks is selling fewer wallets, belts and other items bought by entry-level shoppers. “They are the canary in the coal mine for sentiment at that aspirational level,” Mr. Metrick said."
"Luxury brands have been among the most aggressive in raising prices. HSBC estimates the sector raised prices around 5% since April, on top of an 8% increase starting in September 2021."
2 comments:
And if the price of pencils instead goes up, will cash-strapped people by more pencils (fewer pens)? - the legendary Giffen good.
To talk about Giffen goods, we would need to talk about both substitution effects (what I mention) and income effects. It is possible that the increase in the price of pencils causes your real income to go down.
If pencils are an inferior good, then their demand increases when income goes down (that is, the demand line shifts to the right). To be a Giffen good, this income effect would have to outweigh the substitution effect of the lower price.
At a lower income, you can't afford the better items, so you decide to buy more of the inferior good. So the quantity purchased of the good actually increases when prices rise. This is not going to happen very often in the real world
Wikipedia says "The classic example given by Marshall is of inferior quality staple foods, whose demand is driven by poverty that makes their purchasers unable to afford superior foodstuffs. As the price of the cheap staple rises, they can no longer afford to supplement their diet with better foods, and must consume more of the staple food."
But all I am concentrating on here is the substitution effect. I am assuming that income is held constant when I say that when the price of pens increases, the demand for pencils will increase. Also, there are usually few close substitutes for the Giffen good. We definitely have them here.
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