The only thing that will make companies lower prices is if consumers stop complaining about paying more for the things they need and want, and actually start refusing to buy them.<\/p>\n
As the U.S. corporate earnings reporting season progresses, with earnings from major retailers Walmart Inc. This dynamic, of how consumers adjust their spending habits when prices change, is referred to by economists as the price elasticity of demand.<\/p>\n Those who trust companies will choose to ratchet down prices on their own, or at least not raise them because the rise in input costs have been slowing, haven\u2019t been listening to what the many companies have told analysts in post-earnings conference calls.<\/p>\n Read<\/strong>: U.S. inflation eases again, PCE shows. Prices rise at slowest pace in almost two years.<\/p>\n Kraft Heinz Co. Colgate-Palmolive Co. And while PepsiCo Inc. \u201cObviously, there is still carryover pricing, and I don\u2019t think we\u2019ll do anything different than our normal cycles on pricing in the balance of the year,\u201d PepsiCo Chief Financial Officer Hugh Johnston told analysts, according to an AlphaSense transcript.<\/p>\n Basically, as MarketWatch has reported, so-called \u201cGreedflation\u201d is still alive and well.<\/p>\n Jamie Cox, managing partner for Harris Financial Group, said as long as the job market stays strong, as it is now, corporate greed will continue to pay off.<\/p>\n \u201cIf something is more expensive, and you have a job, you\u2019ll complain about it, but you won\u2019t substitute it for something cheaper,\u201d Cox said. For companies to cut prices, \u201cyou have to have the consumer go on strike, and they\u2019re not there yet,\u201d Cox added.<\/p>\n The reason elasticity is so important in the current environment is because as long as consumers continue to pay the higher prices companies are charging, inflation will remain stubbornly high, and the more likely the Federal Reserve will continue to raise interest rates, or at the very least not lower them.<\/p>\n But the longer interest rates stay high enough to crimp economic growth, the more likely the stock market will reverse lower as recession fears rise.<\/p>\n \u201cAt some point, people are going to say, all right enough,\u201d said Paul Nolte, senior wealth manager and market strategist at Murphy & Sylvest Wealth Management. \u201cBut we just haven\u2019t seen that yet.\u201d<\/p>\n What is elasticity<\/strong>?<\/p>\n Economists use the term \u201cprice elasticity of demand\u201d to refer to the way in which consumers adjust their spending habits when prices change. <\/p>\n \u201cElasticity tries to measure how much more producers will want to produce if prices rise, and how much more consumers will want to buy if prices fall,\u201d explained Bill Adams, chief economist at Comerica.<\/p>\n Elasticity often depends on the type of product a company sells.<\/p>\n For example, consumer discretionary companies that sell products and services that people \u201cwant,\u201d will often experience greater price elasticity than consumer staples companies that sell things that people need, such as groceries and prescription drugs.<\/p>\n But even for needs, consumers often still have a choice, as less expensive generic, or private-label alternatives, may be available.<\/p>\n Andre Schulten, chief financial officer of consumer staples products seller Procter & Gamble Co. As Harris Financial\u2019s Cox said, consumers may be complaining about higher prices, but they aren\u2019t yet desperate enough to stop buying.<\/p>\n The Federal Reserve\u2019s latest Beige Book economic survey stated that business contacts in some districts noted a \u201creluctance\u201d to raise prices as consumers appeared to have grown more sensitive to prices, but other districts reported \u201csolid demand\u201d allowed companies to maintain prices and profitability.<\/p>\n That\u2019s likely why companies and analysts have become less concerned about price elasticity. Based on a FactSet analysis, mentions of the word \u201celasticity\u201d in press releases and conference calls of S&P 500 companies With inflation trends softening this year, the Fed took a brief pause in raising rates in June, helping fuel further stock market gains, before raising rates again in July.<\/p>\n
\n WMT,
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\n Target Corp.
\n TGT,
\n
\n and Home Depot Inc.
\n HD,
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\n on tap next week, investors can get a ground-floor view of how consumer demand may have been hurt, or not, by higher prices, and what the companies plan to do, or not do, about it.<\/p>\n
\n KHC,
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\n acknowledged after its second-quarter report that its relatively higher prices have hurt demand, but not by enough for the branded food and condiments company to consider cutting prices.<\/p>\n
\n CL,
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\n said it will continue to raise prices, even as inflation slows and selling volume declines, as the consumer-products company continues to be laser focused on boosting margins and profits.<\/p>\n
\n PEP,
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\n was worried that elasticities would increase, given how its lower-income customers were being particularly pressured by inflation, the beverage and snack giant reported strong results as it witnessed \u201cbetter elasticities\u201d in most of the markets in which it operated.<\/p>\n
\n PG,
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\n which recently beat earnings expectations as it continued to raise prices, told analyst while there was \u201csome trading into private label,\u201d the overall market share of private label products were flat for the year.<\/p>\n
\n SPX
\n increased as inflation and interest rates started surging in early 2022 through the end of the year.<\/p>\n