Here's a phrase every consumer should understand: "purchasing power." It represents the value of the cash a consumer uses to buy products and services.
The term is linked closely with the U.S. consumer price index, which represents the actual cost of living at any given time.
By and large, if your household income keeps pace with inflation, your cost of living is manageable. Life gets better if your income outpaces inflation – in that scenario, most consumers see a big spike in their standard of living.
But if inflation outpaces annual income -- and that's been the case for the past year -- the average American’s standard of living drops because people don't have enough cash to counteract rising prices.
“As prices rise, you have less money to spend, and as they fall, you have more,” said Jeff Mains, chief executive at Champion Leadership Group in Plano, Texas.
“Inflation, the gradual decline in a currency's purchasing power, is an issue that must be discussed alongside any discussion of purchasing power.”
When inflation rises, your savings and investments become worth less and less. “If prices rise due to inflation, but your wage stays the same, your purchasing power will diminish, and you won't be able to buy as much as you could before,” Mains notes.
The Walmart Effect
The latter scenario is confirmed with a closer look at current consumer prices in everyday life, using Walmart (WMT) prices as a benchmark.
For instance, a new study from TradingPedia, a financial investment platform, showed that the total price of 34 Walmart groceries items increased by 21.5% between July 2019 and July 2022.
TradingPedia arrived at that number after analyzing common grocery items available at Walmart.
To do this, it used a web-archive tool that enabled its analysts to see what the prices were in July 2019. The company then calculated the percentage price increases of these 34 products and compared it with the increase in the average weekly earnings of all employees in the U.S. between July 2019 and July 2022.
The idea is to understand how consumers' purchasing power for grocery items changed in the period, the report said.
Specific price increases bear out that formula.
For example, at Walmart the price of Ball Park Original Franks rose 30% to $4.22 from $3.24 during the period covered in the report.
Sweet onion prices nearly tripled, to $1.75 from 66 cents. And the price of an eight-pack of Pepsi rose by more than two-thirds (68%) to $13.98 from $8.34.
Consequently, if you’re shopping at Walmart, or any big-box grocery retailer, and you feel like you’re digging deeper to cover the tab, it’s not your imagination.
“If we had bought all 34 grocery products subject to our analysis in July 2019, they would have cost $153.08,” the study stated. In July 2022, "the total price of all products was $186.02, which is an increase of 21.5%," the report says.
"On the other hand, between July 2019 and July 2022, the average weekly earnings of all employees in the US increased by 15.76%, from $964.23 to $1116.54.
“Consequently, we can see a 5.74% decrease in consumer purchasing power for grocery shopping between July 2019 and July 2022.”
When Will Consumer Purchasing Power Catch Up?
TradingPedia analysts say it's difficult to predict when consumer purchasing power for buying groceries will reach the prepandemic level from July 2019.
“It depends on the correlation between food inflation and the average weekly earnings annual growth rate,” said Michael Fisher, inflation analyst at the company.
According to recent research published by the U.S. Department of Agriculture, "food-at-home (grocery store or supermarket food purchases) prices are predicted to increase between 2% and 3% in 2023.”
In contrast, the average weekly earnings annual growth rate is 4.9% to 5.5%.
“If we take into consideration these predictions, the customer purchasing power for buying groceries will reach the prepandemic level from July 2019 in the first half of 2024 at the earliest,” Fisher said.
How to Make Every Dollar Count
Traditional discount providers, such as Walmart, have had to pass on the burden of increased costs to their customers, resulting in our money not going as far as it used to.
To fight back and squeeze every nickel out of your grocery-store budget, try these tips from Jacqui Kearns, chief strategy officer at Affinity Federal Credit Union, in Mendham, N.J.
· Store versus online. Prices do vary online versus in-store. “Make sure to check the daily app updates,” Kearns said. “Also keep tabs on the rollback prices or deals of the day. The prices in-store can differ from what's offered online. Many retailers will have different weekly circular deals or online shopping bonuses. Be sure to check both.”
· Check the store app for coupons. Many retailers put special coupons on their apps for loyal customers and shoppers. “Even the big retailers like Walmart or Target (TGT) have specials only available to their loyalty or credit card holders, so check often,” Kearns noted.
· Shop farmstand and local Yes, the major retailers will have inventory and discounts, but going to a local farmers market or stands can offer great discounts, especially for midweek shoppers. “A local farm in my neighborhood just had a produce sale on a Wednesday that rolled back prices to their anniversary date of 1982,” Kearns said.