Rising prices, particularly for budget supermarket brands, are a recent phenomenon fuelled by consumer habits and clever marketing, according to new research published in the Journal of Monetary Economics.
Harvard's Alberto Cavallo and the Bank of Canada's Oleksiy Kryvtsov analysed over two million food and beverage items sold by 91 retailers in ten countries (2018-2024), finding that price increases for cheaper goods, or 'cheapflation', significantly outpaced those for more expensive items.
Analysis of data from Canadian Nielsen Homescan Panel showed discounts reduced average price increases by 4.1 percentage points (24% of the total increase since 2020), but switching to cheaper brands increased them by 2.8 percentage points (16% relative to a fixed-weight index).
The research highlights that in Germany, from January 2020 to May 2024, inexpensive food prices rose 29%, nearly double the 15% increase for expensive food.
While cheaper products, including private labels, remained less costly than branded goods, the gap narrowed. The authors suggest that during high inflation, consumers shifted towards cheaper options, prompting manufacturers and retailers to raise prices of these goods disproportionately.
Pricing Trends
Expensive branded products rely heavily on advertising to maintain their image, providing a buffer during inflation: manufacturers can temporarily cut advertising costs, mitigating price increases beyond the rising energy, raw material, and labour expenses.
Conversely, inexpensive goods, especially private labels, require minimal advertising, making their prices directly tied to production costs. Any production cost increase is therefore reflected more immediately and fully in their price, the study found.
The frequent purchase of food and its apparent price increase contribute significantly to the perception of overall rising costs.
Food prices in Germany increased by 30% between 2020 and 2023, a particularly sharp increase during the recent inflationary period.
The Federal Statistical Office calculates consumer price inflation using a 'shopping basket' method, tracking prices of 700 goods and services—ranging from everyday items to infrequently purchased ones like washing machines—both in stores and online.
While food makes up only 12.5% of the overall shopping basket, its recent price hikes have not had as large an impact on the total basket's 16.7% price increase between 2020 and 2023 as they have on individual food budgets.
This is because cheap food items represent only a fraction of typical food purchases, and food itself is just one of twelve major consumer categories.
