University of Minnesota: Inflation pains compounded by ‘exhaustion multiplier’

2021 was the worst year for inflation since 1982, according to the latest Consumer Price Index report from the Bureau of Labor Statistics. Even the Dollar Tree is now the $1.25 store.

Carlson School of Management Professor Mark Bergen is an expert in pricing and serves as a consultant to companies. He suggests the loss of stability from both inflation and the pandemic are creating what he calls an “exhaustion multiplier,” making it more difficult for consumers and companies to navigate today’s inflationary pressures.

Mark Bergen, Ph.D.

“The pandemic ushered in a time of uncertainty, loss and relentless challenges. Until recent months prices remained largely stable, but now, inflation is adding similar economic challenges. This is creating an ‘exhaustion multiplier’ that’s unprecedented with previous episodes of inflation.”

“To deal with this ‘exhaustion multiplier,’ consumers should be in triage mode and follow some simple tips:

Focus on necessities. Shop for the best prices for your key items.
Choose goods over cash. Branded products, like canned goods and non-perishables, hold their value over time, which provides stability.
Buy in bulk. Prices might increase in the future.
“The ‘exhaustion multiplier,’ is impacting companies, too. Here’s what business leaders should keep in mind:

Triage your costs of changing prices. Simplify, make processes more efficient.
Have compassion for customers. It’s harder on them than it is on you.
Consider societal implications. Some greedy companies may use inflation as a smokescreen to raise prices, but that’s a mistake. Backlash could hurt companies in the long run. Corporations need to navigate pricing with empathy by considering if the increases block essential needs, harm vulnerable populations or take advantage of consumers.
“This “exhaustion multiplier” has made navigating inflation even more difficult. Consumers and companies alike will need to arm themselves with inflation literacy to make it through.”

Mark Bergen is the James D. Watkins Chair in Marketing. Bergen’s research focuses on pricing and channels of distribution, where he has studied issues such as pricing as a strategic capability, price wars, pricing as truces, and how AI can help companies set prices more ethically.