As inflation that has plagued the U.S. economy for the past three years begins to ease, economists are crediting American consumers for playing a key role in the shift. Some of the largest companies in the country, from Amazon to Disney and Yum Brands, report that customers are increasingly seeking cheaper alternatives, hunting for bargains, or simply avoiding products and services that have become too expensive.

While consumers aren’t cutting back to the point of triggering an economic downturn, their growing resistance to rising prices has forced many companies to slow or halt price increases. This shift is being viewed as a critical factor in taming inflation and bringing it closer to the Federal Reserve’s 2% target rate. “While inflation is down, prices are still high, and I think consumers have gotten to the point where they’re just not accepting it,” said Tom Barkin, president of the Federal Reserve Bank of Richmond. “And that’s what you want: The solution to high prices is high prices.”

Economists argue that this increased price sensitivity is helping to steadily reduce inflation, which reached its highest levels in decades and placed significant pressure on household budgets. Inflation became a central issue in the 2024 presidential election, with many Americans expressing dissatisfaction with the Biden-Harris administration’s handling of the economy. However, recent developments suggest that inflation may be cooling, thanks in large part to consumers pushing back against higher costs.

Along with consumer resistance, other factors have also contributed to easing inflation. Supply chains, which were severely disrupted during the pandemic, have recovered, boosting the availability of goods like cars, furniture, and meats. Additionally, the Federal Reserve’s high interest rates have slowed sales of homes, cars, and other interest-sensitive purchases, further reducing inflationary pressure.

However, there are concerns that if consumers reduce spending too much, it could put the broader economy at risk. Since consumer spending makes up more than two-thirds of U.S. economic activity, any significant pullback could lead to a slowdown. Recent evidence suggests that the labor market is cooling, and a drop in spending could derail the current economic recovery. These concerns briefly rattled financial markets, but stocks have since rebounded.

Government reports this week are expected to shed more light on inflation and consumer behavior. The consumer price index for July is predicted to show that prices, excluding volatile food and energy costs, rose by 3.2% from the previous year, down from 3.3% in June. This would mark the lowest year-over-year inflation rate since April 2021. Additionally, retail sales for July are expected to have increased by 0.3% from June, indicating that while Americans are being more cautious with their money, they are still spending.

Many businesses are adapting to this new consumer mindset. Amazon’s CEO, Andrew Jassy, recently noted, “We’re seeing lower average selling prices… because customers continue to trade down on price when they can.” Yum Brands, the parent company of Taco Bell, KFC, and Pizza Hut, reported a 1% decline in sales at stores open for at least a year, which CEO David Gibbs attributed to cost-conscious consumers. Gibbs emphasized the need to provide more affordable options to meet customer demand.

Some companies have even begun lowering prices. Dormify, an online retailer specializing in dorm room supplies, is offering comforters starting at $69, down from $99 last year, in response to consumers’ desire for lower-cost goods.

The Federal Reserve’s “Beige Book,” an anecdotal collection of business reports, echoed these trends, noting that nearly all 12 Fed districts reported that retailers were discounting items and that price-sensitive consumers were trading down, purchasing fewer items, or shopping for better deals. “Consumers are still spending, but they’re choosing,” Barkin observed.

This more frugal consumer behavior is now seen as a significant factor in bringing inflation back down to manageable levels. Jared Bernstein, who leads the Biden administration’s Council of Economic Advisers, cited consumer caution as a reason why inflation is nearing its end. Bernstein noted that after the pandemic, consumers were less responsive to price increases due to their improved finances, following rounds of stimulus checks and reduced spending on services during lockdowns. This allowed companies to raise prices more than necessary, boosting their profits.

However, as the cost of living continues to strain household budgets, consumers are no longer as willing to accept rising prices. Isabella Weber, an economist at the University of Massachusetts, Amherst, coined the term “sellers’ inflation” to describe this phenomenon, noting that public awareness of supply chain disruptions created an environment where companies could justify price hikes. But now, as Barkin pointed out, consumers are rethinking their spending decisions. “People have a little bit more time to stop and say, ‘How do I feel about paying $9.89 for a 12-pack of Diet Coke when I used to pay $5.99?’ They don’t like it that much, and so people are making choices.”

Barkin remains optimistic that this consumer-driven resistance will continue to cool inflation. “I’m actually pretty optimistic that over the next few months, we’re going to see good readings on the inflation side,” he said. “All the elements of inflation seem to be settling down.”

The sustained pressure from consumers to avoid paying higher prices appears to be delivering a final blow to the inflation spike that has dominated the economic landscape since the pandemic began. While the path ahead remains uncertain, the influence of American shoppers in shaping inflation trends is becoming increasingly clear.