How inflation affects the total market
Inflation. In the last couple of weeks we have looked at the impact on product and store choice. This week we turn to how inflation affects the total market.
- Food price inflation is historically fully reflected in FMCG values
Taking the period prior to the pandemic from 2008, monthly average food price inflation was 3.9% and FMCG value growth was 3.8% – highly correlated even over the ‘credit crunch’ and high inflation period in 2008 and the subsequent economic downturn. - The close correlation between inflation and FMCG value is a balance between pricing, volume growth and downtrading – especially in hard times
Periods of significant price rises or economic downturns lead to additional volume growth for FMCG alongside more down-trading to cheaper options.
So the market benefits but brands may not – and that’s why investment is so critical at these times. - In hard times households concentrate on essentials – FMCG takes a greater share of overall expenditure
The article above shows that the FMCG market benefits in hard times.
Essentials become more important as shown by the stabilisation of the Food & Beverages share of EU household expenditure in the period of high inflation and economic downturn from 2008.