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Posts tagged with: "PCU44534453"

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The lockdown’s effect on the alcoholic beverage market

March's "last call for alcohol" boosted demand but only nudged prices

As U.S. cities and states started locking down in response to the COVID-19 pandemic, retail alcohol sales spiked. And they did so despite various additional restrictions for retailers and their customers.

Clearly, consumers were at least in part shifting from consumption in restaurants and bars to consumption at home. (The FRED Blog previously reported a similarly strong substitution from meals in restaurants to meals at home.) So, given this spike in retail purchases, what happened to prices?

If demand shoots up like this, market forces should increase prices as well. And prices paid by consumers did rise, but only moderately, as shown by the consumer price index (CPI). This moderate increase is even more surprising given the much larger increase in prices paid by retailers, as shown by the producer price index (PPI). That is, the data suggest retailers did not pass the full increase in costs on to their customers.

Why would retailers reduce their profit margins despite such a boost in demand? Price gouging in times of distress can damage a business’s reputation and is even illegal in some U.S. states. The demand shock may also have been perceived as temporary, so retailers may have been willing to forgo a large amount of quick profit to reinforce better long-term prospects with their regular customers.

How this graph was created: Search for and select the “retail sales beer” series. From the “Edit Graph” panel, use the “Add Line” tab to search for and select “PPI beer.” Repeat with “CPI beverages.” Choose units “Index (scale value to 100 for chosen date)” for 2020-02-01 and select “Apply to all.” Finally, limit the graph to the past 10 years.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: CUSR0000SAF116, MRTSSM4453USS, PCU44534453


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