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Yes, Grocery Prices Are Higher, But Not Nearly as High as You Think

Americans are experiencing pain at the grocery store, but the pain is subject to perception.
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Inflation has hammered U.S. consumers this year, and it may feel even worse than it actually is.

In July, Americans perceived that grocery-store inflation totaled an annual rate of 22.8%, according to a survey from Dunnhumby, a data information service. 

But the government’s consumer price report showed "only" 13.1% inflation for food-at-home prices in the 12 months through July.

To be sure, consumers’ perceptions are just that. Unless shoppers compared receipts, they were just guessing how much food prices were ascending. 

When prices are climbing sharply, it’s not surprising that consumers might consider that they’re increasing even further than they really are.

In any case, Dunnhumby seven months ago first reported a mismatch between consumer sentiment and reality regarding food inflation.

“We now we see it’s at the highest point to date. And we are also seeing that consumers are responding by changing their shopping behavior,” said Grant Steadman, Dunnhumby’s North America president. “Perhaps most troublingly, nearly a third are cutting back or completely eliminating some meals.”

Further, “while there are signs in parts of the economy that inflation may be dampening, that has not occurred yet for food,” he said.

“Retailers and manufacturers need to ensure that they are putting their customers first when they are making decisions about how to respond to persistent inflationary pressures.”

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Consumers Are Skipping and Reducing Meals

A total of 18% of consumers surveyed said they weren’t getting enough food, and nearly a third (31%) of households have skipped or reduced the size of their meals in the past 12 months.

Also in the survey: Nearly two-thirds (64%) of consumers said they would have difficulty covering an unexpected expense of $400 -- including a high of 77% in Louisiana and Oklahoma and a low of 42% in Wisconsin.

Consumers said they were shifting a significant share of their spending to dollar stores and away from specialty and premium stores. 

Since April-May 2022, dollar stores’ share of consumer spending has increased to 19.9% from 17.8%, while specialty/premium stores’ share has slid to 17.6% from 18.7%.

Seeking Cheaper Alternatives

In addition, 83% of respondents are looking for cheaper alternatives to the products they usually buy. 

The top three categories seeing consumers trade down are packaged foods (53%), common household products (52%), and frozen foods (42%).

Despite the shift to cheaper products, the purchase of premium/luxury items rose 3% at grocery stores in July.

“This aligns with the ‘lipstick effect’ that has been observed in previous recessions, whereby consumers will invest in small luxuries that increase their confidence and perceived attractiveness during periods of uncertainty,” the survey said.

“Customers are likely forgoing more expensive luxuries in place of small luxuries available at the grocery store.”