The past few weeks have seen a growing number of retailers reporting price cuts, including IKEA, Costco, Whole Foods/Amazon Fresh, Giant Eagle, Stop & Shop, Nike, and Party City, following in the footsteps of Target, Walmart, Amazon, Aldi, Walgreens, and Michaels earlier this year.

Amid the price cuts was the latest US CPI (Consumer Price Index) report for Sep 2024 indicating a 2.4% rise in price levels over the past 12 months (before seasonal adjustment). While not yet at the Fed’s 2% target, it was the lowest such increase reported since Feb 2021. As a point of reference, pre-pandemic inflation in Feb 2020 was 2.3%.

While price levels are often sticky, they can fall in an environment of weak demand, falling costs, high competition, and operational efficiencies. Used vehicles are down 5.1% (resulting in many EV owners being underwater on their loans), gasoline is down a whopping 15%, TVs are down 5.6%, and smartphones are down 9.3%. Notably, the price of food at home rose just 1.3% over the past 12 months.

The prices that consumers see in stores are seeing significant drops. IKEA slashed its already low prices by about 10% during its most recent fiscal year (Sep-Aug) – the largest cut in its history. The classic Billy bookcase, for instance, is now $69, the same price as in 2016. The price cuts were enabled by falling raw materials and logistics costs. IKEA’s 12 franchisees agreed to the global price cut to drive demand, resulting in a 4.5% increase in in-store visits and a 21% increase in online visits (which represent 26% of all sales). Annual sales for IKEA, however, still fell 5.3% despite rising volumes.

Similarly, Costco reported on its Q4 2024 earnings call that it had cut prices on some of its popular Kirkland Signature brand items, which have a capped margin. For instance, the price of its boneless chicken tenderloins were cut by 13%, resulting in a 21% increase in pounds sold. Other items that saw price cuts included macadamia nuts (26%), baguettes (17%), Spanish olive oil (10%), standard foil (6.3%), and laundry detergent (5%). Gas prices were down 5% for the quarter, while volume was up 3%. According to Costco’s CFO, some cuts are being enabled by localizing production and reducing packaging. In Asia, it was able to cut the price of paper towels by 30% due to manufacturing in Japan. Costco memberships have lately been on the rise (despite its first price hike since 2017) – up 7.3% in paid memberships and up 9.6% in executive memberships (which represent 47% of paid members).

Even Amazon-owned Whole Foods – which in the past was known for its high prices and “Whole Paycheck” nickname – has been repositioning its messaging around value. It recently revealed that it had cut prices on 25% of the items across its stores, including 880 items under its private-label 365 brand, which it considers its entry-level price point.

Earlier this year, Amazon announced it would institute discounts on Amazon Fresh products on a rotating weekly basis, with savings of up to 30% on 4,000 grocery items, including both national brands and private-label items. Last month, it amped up the savings for Prime members on 3,000+ Amazon Fresh grocery items, ranging from 10% off on 1,700+ Amazon private-label products; to 25% off 1,200+ items from national brands; and up to 50% off 8-15 select items rotating weekly. It also unveiled a new private-label value brand called Amazon Saver.

Other retailers are also making sizable price reductions. Giant Eagle is cutting prices by 20% on 200+ produce items. Stop & Shop is cutting prices on 3,500 national-brand and private-label items, with reductions ranging from 11-30%, and also eliminating its 10-cent bag fee. Party City is cutting prices by an average of 20% on 2,000+ products ahead of the holidays. Even Nike is lowering prices through promotions to unload excess inventory, in addition to pushing more accessible sub-$100 shoes.

Casual restaurants are vying to offer value to price-constrained consumers. Pizza-delivery companies like Domino’s are engaged in a price war. Burger King, McDonald’s, Taco Bell, Wendy’s, Jack in the Box, Carl’s Jr, KFC, and Hardee’s are duking it out in a value-meal war. McDonald’s is currently suing meat packers Tyson Foods, Cargill, JBS, and National Beef Packing for keeping beef prices through price-fixing. (Beef is up 4.2% year-over-year.)

Prices are coming down for a variety of reasons. Input prices tied to energy have fallen and ocean-freight rates have softened with China’s cooling exports. China has seen 24 straight months of producer price deflation since Oct 2022, with producer prices recently down 2.8% year-over-year in Sep 2024. US import prices were down 0.4% month-over-month in Sep 2024, the biggest drop since Dec 2023. On a year-over-year basis, import prices were down 0.1%.

Some companies are becoming more productive, enjoying improved operating efficiencies, and seeing reduced shrinkage, giving them more margin room for discounting. Costco, for one, would prefer to be a leader than a follower, saying: “[W]e want to be the first to lower prices and the last to raise prices.” Some of those discounts are being backed by CPG (consumer packaged goods) companies investing in promotions to drive unit sales.

Prices are certainly not coming down across the board. Costco, for instance, pointed to corn, flour, and sugar being deflationary, while butter, cocoa, eggs, and cheese were more inflationary. The price of eggs are up 40% (largely due to bird flu) and frozen juices are up 15% (largely due to troubles with Brazilian orange harvests), whereas apples and potatoes are both down.

Despite slowing inflation, price levels are still 21% higher than in pre-pandemic Feb 2020 – significantly higher than the 8-10% that would be expected if the economy had been hitting the 2% inflation target. The categories that continue to rise include food away from home (up 3.9% over the past 12 months), electricity (3.7%), shelter (4.9%), transportation services (8.5%), and medical care services (3.6%). Insurance is still high in general, with health insurance up 7.5% and auto insurance up 16%.

There’s certainly room for further price declines across the economy. There’s also many ways the economy could go off-track – for instance, if the dockworker strike rears its head again in Jan 2025, or if we see a conflict-driven supply-chain disruption or inflationary tariffs after the election. The Fed’s pace in cutting interest rates is also another X-factor. After the surprising 50-point cut last month (which was expected to be a 25-point cut), there’s no telling whether the Fed will concur with the market’s expected 25-point cut at the next meeting coming up on Nov 6-7.

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