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What kind of metrics push prices to start falling? Just thinking as a service oriented business (say a salon or restaurant), why would I ever want to lower my

What kind of metrics push prices to start falling? Just thinking as a service oriented business (say a salon or restaurant), why would I ever want to lower my prices if customers keep showing up? Seems like there is a really long tail for prices to return to pre-COVID levels, if ever.

lucideer 3y ago
> if customers keep showing up? Presumably this is the qualifier that answers the question? That's a fairly large "if".
deleted 3y ago
[deleted]
riv991 3y ago
You don't need prices to fall for inflation to slow (that's deflation). You need the rate that prices are rising to decrease
- TechBro8615 3y ago
  Specifically, the commonly cited "accelerating inflation" refers to the third derivative of price with respect to time. Interestingly, more physicists seem to understand this than economists: https://www.coppolacomment.com/2021/05/calculus-for-economists.html https://www.coppolacomment.com/2021/05/calculus-for-economis...
alkonaut 3y ago
Are many prices really falling, other than some very specific goods that had supply issues? I thought the slow regression towards low inflation was just most prices stabilizing at a new (much higher) level?
kemotep 3y ago
Inflation is still happening, it is just that based on this report the rate of price increases is less than it was last month and year over year.
JumpCrisscross 3y ago
> thinking as a service oriented business (say a salon or restaurant), why would I ever want to lower my prices “Prices for goods decreased 0.1 percent and prices for services increased 0.3 percent” in May.
grumpopotamus 3y ago
An increase in supply and/or a decrease in demand can cause prices to fall. However, falling inflation does not mean falling prices. If inflation is falling but still positive, then prices are still increasing, on average.
yaks_hairbrush 3y ago
You're right that a business wouldn't lower prices if customers keep showing up. The basic causes of prices falling amount to two: increased supply, and decreased demand. On the supply end, if competitors enter a given market and take some of your customers, you might lower prices to lure them back. And if people just can't afford (or otherwise don't want) to go to your salon/restaurant as often, then you might lower prices to lure them back. As far as the current environment, we've got student loan payments restarting in a couple months after a three-year hiatus. A good number of folks who had some disposable income are going to have less. That'll impact the demand end of the equation. Won't necessarily cause deflation, but will at least lower inflation.
martythemaniak 3y ago
Prices aren't going to return to pre-covid levels unless you see a sustained period of deflation. Central Banks have a mandate to keep inflation around 2% while keeping employment as high as possible. The target is (and has been for many decades) 2% inflation, not 20% defaltion.
smeyer 3y ago
Prices are much stickier for some products than others. There's a big difference between a lot of commodities being sold wholesale (oil or steel or whatever), products sold to consumers (cars or oreos), and services (especially ones with a personal touch or relationship like you mentioned). I think it would take a lot of deflation for most salons to lower prices versus just delay future increases, but prices regularly fluctuate up and down at the grocery store or used car lot.
bryanlarsen 3y ago
It'd take a very rare situation for a salon to lower their sticker price, but there are lots of ways to lower effective prices without lowering the sticker price -- sales, bundles, promotions etc. Inflation is calculated using baskets based on prices actually paid rather than sticker prices, so it mostly captures the effects of sales etc.
fma 3y ago
And that's exactly what consumer staples companies like Proctor & Gamble, Kimberly Clark...figured out. "Why would I never want to lower my prices if people always need toilet paper"
HWR_14 3y ago
> why would I ever want to lower my prices if customers keep showing up? I've noticed that restaurants that severely raised prices have gone from a significant wait time to being almost empty while those that raised them a more reasonable amount have gotten closer to packed. So I'm not sure I really agree with your assumption that customers are price insensitive. Besides, it's pretty short sighted to talk about "still showing up". If you want to maximize profit, you need to guess at how many would show up with lower prices.
matwood 3y ago
You don't need prices to fall. You can look at month to month inflation or month over month. Eventually May to May will be small b/c the shock happened and that level become the new normal, but the ongoing rate went back down. Inflation can be very low and never have prices return to pre-COVID. You would need negative inflation, and likely a recession, for that to happen.

lucideer 3y ago

> if customers keep showing up? Presumably this is the qualifier that answers the question? That's a fairly large "if".

deleted 3y ago

[deleted]

riv991 3y ago

You don't need prices to fall for inflation to slow (that's deflation). You need the rate that prices are rising to decrease

TechBro8615 3y ago
Specifically, the commonly cited "accelerating inflation" refers to the third derivative of price with respect to time. Interestingly, more physicists seem to understand this than economists: https://www.coppolacomment.com/2021/05/calculus-for-economists.html https://www.coppolacomment.com/2021/05/calculus-for-economis...

alkonaut 3y ago

Are many prices really falling, other than some very specific goods that had supply issues? I thought the slow regression towards low inflation was just most prices stabilizing at a new (much higher) level?

kemotep 3y ago

Inflation is still happening, it is just that based on this report the rate of price increases is less than it was last month and year over year.

JumpCrisscross 3y ago

> thinking as a service oriented business (say a salon or restaurant), why would I ever want to lower my prices “Prices for goods decreased 0.1 percent and prices for services increased 0.3 percent” in May.

grumpopotamus 3y ago

An increase in supply and/or a decrease in demand can cause prices to fall. However, falling inflation does not mean falling prices. If inflation is falling but still positive, then prices are still increasing, on average.

yaks_hairbrush 3y ago

You're right that a business wouldn't lower prices if customers keep showing up. The basic causes of prices falling amount to two: increased supply, and decreased demand. On the supply end, if competitors enter a given market and take some of your customers, you might lower prices to lure them back. And if people just can't afford (or otherwise don't want) to go to your salon/restaurant as often, then you might lower prices to lure them back. As far as the current environment, we've got student loan payments restarting in a couple months after a three-year hiatus. A good number of folks who had some disposable income are going to have less. That'll impact the demand end of the equation. Won't necessarily cause deflation, but will at least lower inflation.

martythemaniak 3y ago

Prices aren't going to return to pre-covid levels unless you see a sustained period of deflation. Central Banks have a mandate to keep inflation around 2% while keeping employment as high as possible. The target is (and has been for many decades) 2% inflation, not 20% defaltion.

smeyer 3y ago

Prices are much stickier for some products than others. There's a big difference between a lot of commodities being sold wholesale (oil or steel or whatever), products sold to consumers (cars or oreos), and services (especially ones with a personal touch or relationship like you mentioned). I think it would take a lot of deflation for most salons to lower prices versus just delay future increases, but prices regularly fluctuate up and down at the grocery store or used car lot.

bryanlarsen 3y ago

It'd take a very rare situation for a salon to lower their sticker price, but there are lots of ways to lower effective prices without lowering the sticker price -- sales, bundles, promotions etc. Inflation is calculated using baskets based on prices actually paid rather than sticker prices, so it mostly captures the effects of sales etc.

fma 3y ago

And that's exactly what consumer staples companies like Proctor & Gamble, Kimberly Clark...figured out. "Why would I never want to lower my prices if people always need toilet paper"

HWR_14 3y ago

> why would I ever want to lower my prices if customers keep showing up? I've noticed that restaurants that severely raised prices have gone from a significant wait time to being almost empty while those that raised them a more reasonable amount have gotten closer to packed. So I'm not sure I really agree with your assumption that customers are price insensitive. Besides, it's pretty short sighted to talk about "still showing up". If you want to maximize profit, you need to guess at how many would show up with lower prices.

matwood 3y ago

You don't need prices to fall. You can look at month to month inflation or month over month. Eventually May to May will be small b/c the shock happened and that level become the new normal, but the ongoing rate went back down. Inflation can be very low and never have prices return to pre-COVID. You would need negative inflation, and likely a recession, for that to happen.