Ratchet Effects

This report examines the 'ratchet effect' in pricing, where temporary inflation shocks become entrenched in consumer prices. Even when original cost drivers like oil or tariffs subside, businesses often maintain higher price points if consumers have accepted them.

Key Takeaways

• 1.Consumers form opinions of 'fair' prices based on historical levels, causing political tension when current prices remain elevated despite declines.
• 2.Price increases driven by temporary factors like wartime surcharges or tariffs often become permanent if consumer acceptance allows companies to maintain margins.

Table of Contents

• Ratchet effects
• Global asset class preferences definitions
• Appendix

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