The Optical Illusion of Inflation

What Do Consumers Really Think About Produce Prices?

Perception is everything, as they say. It might be a cliche, but it’s a philosophy that holds water in economics. What consumers perceive to be true in their mind actually does shape the actions they take with their money- just ask Former Federal Reserve Chair Volker. It’s true at the national level and in the fruit and vegetable aisle. Does the piece of fruit or bag of veggies look appealing? Do I believe it has a benefit? How many meals can I use it in? Am I willing to pay this amount for it?

Cultivating perception is why companies have a budget for marketing. If they can influence perception they can influence behavior. But, even without marketing, consumers generally make their spending decisions based on what they think about pricing, value and future needs. 

Sometimes perception doesn’t match actuality, as in the case of inflation. If you can recall paying $4.00 per pound of ground beef once, but today have to pay $7.00 per pound, you might perceive that inflation is climbing at an alarming rate. If you’ve heard that tomatoes could become more expensive and you notice they are a few cents more today than they were last month, you might perceive that produce prices are climbing quickly. If you have a set budget for your groceries each week and have been able to buy all that you set out to purchase for several weeks in a row, you could perceive that inflation is stabilizing. 

Actual versus Perceived Inflation Rates

What you perceive to be true might make you change your grocery budget. It could prompt you to start buying one product or stop purchasing another. Consumer perception is just one of the many variables the Federal Reserve (Fed) considers when making decisions, even if it doesn’t match up with actual figures. Coming off of an election season where 41% of consumers stated inflated groceries prices were the most concerning financial problem for them, economists, the Fed and grocery stores alike are contemplating how perception will influence the flow of goods.

Food-at-home (FAH), is a single category of food that refers to food purchased at a grocery store to be made and consumed at home. From 2020 to 2023 the FAH category experienced significant inflation, peaking at 13.5% and contributed to Fed overall inflation rate percentages which ranged from 4.1% to 9.1% during the same time period. While the FAH category has since stabilized and remained around a 1% inflation rate since November of 2023, a consumer poll conducted in the spring of 2024 revealed that shoppers still believed inflation rates on groceries hovered around 6%. 

The consumer survey points to multiple reasons why consumers believe inflation rates are higher than they actually are. To begin with, a portion of the public has a skewed understanding of inflation and believes it references the cost of food going up or down rather than the rate at which prices rise or fall. Second, the survey discovered that individual consumers have their own metrics for measuring inflation. Prices have not returned to their pre-inflation levels.  Third, consumers believed a retailer’s profit played a role in pricing and inflation rates, another issue that was discussed during the last election.

While the Fed analyzes yearly, monthly, and even the weekly progression of price changes, a consumer tends to think back to a price point they were accustomed to or comfortable with. The Fed also looks at a basket of goods, which may or may not reflect what any individual consumer purchases. There is great variation between food categories.  

Between 2023 and 2024 the inflation rate was only 1.04% for FAH which is considered normal. But if we hold 2024 against 2020 that percentage rate climbs to 24.68% and has little to do with what occurred in 2023 and everything to do with 2021 dynamics. If 41% of shoppers are comparing grocery prices today with prices in 2020 then they could easily perceive that inflation is still climbing quickly even though actual inflation rates have slowed significantly. 

How Does Perception Influence Consumer Spending?

When it comes to the U.S. economy, consumer spending comprises 70%. Are consumers viewing produce as affordable and do they think it will continue to be affordable in the near future?  Even the idea that tariffs could impact vegetable prices, or that severe weather is harming crop production, or that funding structures will change is enough to change a shopper’s perspective and cause them to behave differently. The inflation mindset is in full momentum and, judging by consumer polls, hard to slow down. 

Despite the fact that inflation rates in the produce sector appear to be stable, we can expect consumer perception to lag behind and inflation mindset spending behavior to continue a while longer. Shoppers are buying less per trip and opting to purchase single produce items rather than buying in bulk. While confident consumers are less likely to compare prices,  discouraged shoppers will take the time to find the least expensive version of what they need. Someone who normally buys organic might opt to purchase the less expensive non organic option or, if they still value organic, purchase just one or two at a time .  The demand shift from premium to lower in price items could continue to be the norm.