ONE COMMON way of "beating" inflation is simple, if ineffective. It is to raise your prices or wages before the next guy raises his. Unfortunately, any number can play, which is why no one can win. So it is good news that, in the midst of such a bout of price raising, several area supermarket chains plan to hold to current prices on some house-brand products -- including flour, vegetables and meat -- for a period ranging from 30 days to, in the case of Giant Food, 21 weeks.
This announcement is welcomed by all who have watched their food bills grow week by week. But it is also to be welcomed as a show of ingenuity and some risk-taking by the markets. The risk is that the prices the supermarkets have to pay might take a sudden jump up while their price freeze is in effect. There is no promise that beef prices, for instance, won't be the next to step ahead in the inflationary cycle. But under the price freeze they have designed, the chain stores will probably not suffer losses. In fact, they may increase their profits.
The increased profits could come to the chain stores because added customers may be drawn to the store-brand products, which have a higher profit margin than national name-brand items. If the attention brought to the store-brand products by the price freeze entices added customers to try them, instead of the name-brand products they usually purchase, the store stands to register added profits.
Although this looks to be one plan where nearly everyone -- stores as well as customers -- wins, there may be one loser: national, name-brand products. With a price freeze in effect on the already lower-priced store-brand products, there is a strong incentive for shoppers to stop buying name brands. One reason for the difference in the price of store brands and national name-brand items is the cost of advertising that is done by the national brands. Consequently, less advertising could result from the competition to keep prices low. There are other possible methods of lowering prices. But whatever the mechanism, there will be increased pressure to keep the national brands within the same price range of the store brands.
The supermarket chains are to be congratulated for freezing prices to help people who are struggling to pay food bills. But what really deserves applause is the push for greater competition to brake the inflationary spiral.