Inflation in the US was higher than expected in January at 3.1%, but as always, such numbers come with caveats. First, as I mentioned in the last Game Changer newsletter of 2023, it’s time to break away from looking at prices in aggregate. The headline inflation rate in any country is a symptom of that problem. The challenge is to find the right level of disaggregation or “de-averaging” to understand how prices are changing in a given segment or sector, what the underlying cost trends are, and how the perception of higher or lower prices affects customers’ future buying behavior and willingness to pay. We’ll know more about the underlying cost trends in the US when the producer price indices come out on Friday this week. Second, the right response – if any – depends on the nature of the pricing game you are playing. A company negotiating prices in the Custom Game might notice that higher price trends benefit their customers’ customers and can take that into account. In the Uniform Game, the price changes for many consumer products can deviate significantly from the headline number, which means each company needs to understand the distinct dynamics of its own market. How does today’s inflation report affect your pricing strategy?
Inflation higher than expected
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