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The Washington Post reports on the dramatic price declines that consumers are seeing in the supermarket, “as the global downturn drives down the cost of staples such as wheat, corn and milk and grocers fight for the wallets of penny-pinching consumers … The price of corn, for example, is down 56 percent since July 2008 on the Chicago Board of Trade. Such drops have helped drive down the grocery consumer price index, which measures what shoppers pay at stores, about 2.5 percent since its peak in November, according to new data released Wednesday by the Bureau of Labor Statistics.”

These decreases, the Post notes, have helped to create price wars in some markets….such as Washington, DC: “Locally, Safeway stores have slashed prices on thousands of products by as much as 25 percent over the past month. Giant Food said three weeks ago that it has doubled the number of items on sale and papered its shelves with signs highlighting savings. And Wal-Mart, long feared by rivals for its aggressive pricing, plans to open its first area store with a full-service supermarket in Manassas in October.”
KC's View:
We’re seeing a lot of this, including in places like Southern California, where there are price wars taking place among the major retailers there. And while there is no evidence that this is going to change anytime soon – in part because even if the recession technically is coming to a close, employment numbers are almost certainly going to lag, creating a wake of price-sensitivity that is going to last a long time – let me make a few observations about this.

1. To some extent, this could all change if, say, energy prices started to increase. If the cost of petroleum goes up, that could create a domino effect that will affect a lot of prices, which could do more damage to the economy.

2. I tend to have a cynical streak, and as I watch the stock market held slowly but surely toward 10,000, I have this sinking feeling that as soon as it hits the magic number – more than half way back from where it dropped to a year ago – it all could collapse again. Hope it doesn’t happen, but it could. And that could certainly have a broad impact on prices and behavior.

3. I also believe that retailers need to continue focusing on their other differential advantages - beyond pricing - as they create their value propositions. Pricing is important, but there also has to be something else going for you (especially if fighting Walmart, which tends to have the perception advantage in this area). While some say that people will carry the scars of this recession the same way a lot of our parents carried the scars of the Great Depression with them for their entire lives, I remain dubious. After all, there still are a lot more iPhone and iPod lines than there are bread lines.