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Sunday, April 27, 2008

Consumers Shifting to Inferior Goods

by Calculated Risk on 4/27/2008 05:27:00 PM

From the NY Times: Recession Diet Just One Way to Tighten Belt

Spending data and interviews around the country show that middle- and working-class consumers are starting to switch from name brands to cheaper alternatives, to eat in instead of dining out and to fly at unusual hours to shave dollars off airfares.
Wal-Mart Stores reports stronger-than-usual sales of peanut butter and spaghetti, while restaurants like Domino’s Pizza and Ruby Tuesday have suffered a falloff in orders, suggesting that many Americans are sticking to low-cost home-cooked meals.
This is classic behavior in tough economic times. In economics, "inferior goods" doesn't refer to the quality of the goods, instead it refers to goods where demand changes inversely with income. As incomes rise, people buy less of the inferior good. But as incomes fall, they buy more.

The excerpt above describes people buying more spaghetti to cook at home (inferior good), and ordering less Pizza (a "normal good"). And on beer:
Sales of inexpensive domestic beers, like Keystone Light, are up; sales of higher-price imports, like Corona Extra, are down ...
I expect to see more generic brands (inferior good) soon on the grocery shelves!