Cashback is More Important Than Ever in an Inflationary Economy

On 11 July 2024, the U.S. Bureau of Labor Statistics (BLS) released its latest CPI summary. For all urban consumers, the CPI reflected a slight decline of 0.1% on a seasonally adjusted basis after tracking flat in May 2024.

The biggest drivers of inflation include food, energy commodities, and energy services et al. Notable in the latest report, the food index increased by 0.2% in June, following a 0.1% increase in May.

Indeed, 67% of major grocery store food groups rose during June. The US inflation rate (I: USIR) for 30 June 2024 was measured at 2.97%, Down from 3.27% on 31 May 2024. That represents a 9.10% decrease, but still 0.07% up from one year ago.

And that’s precisely the problem that consumers are facing across the board in the United States. Persistently high inflation, while receding, is gnawing away at the personal disposable incomes (PDI) of consumers.

Inflation is more than a bugbear. It is an insidious, unseen menace that erodes the purchasing power of stubbornly persistent salaries. It has a significantly detrimental effect on fixed-income assets vis-a-vis higher interest rates.

Inflation drivers are multifold, and this economic state refers to sustained increases in price levels (of goods and services) in an economy. While economists continue to lock horns about the precise reasons for inflation, trends suggest that inflation follows economic prosperity.

Consumer Proclivity to Maintain Spending Patterns Remains Strong

And so, consumers are compelled to consider alternatives in their attempts to combat inflation. While complements and substitutes are certainly sensible options in dealing with rising prices, they are insufficient. As a result, consumers are turning to contrarian solutions to mitigate the impact of inflationary erosion on disposable incomes.

The proclivity to maintain the status quo vis-a-vis a certain standard of living remains strong, despite inflationary pressures. In this vein, consumers test the limits by applying various solutions. One such option gaining traction in the mass market is a restaurant discount app. A novel solution, the application delivers cashback on in-network purchases via a complimentary app.

By partnering with some 50,000+ restaurants, grocery stores, and gas stations, the inflation-busting solution aims to put more cash back in the pockets of everyday consumers. In fact, the rewards compound every time consumers eat meals out, go on grocery runs or fill up their vehicles.

The net effect is a sustained ‘reduction’ in real costs over time via cash back. When purchases are made using credit cards like Visa or MasterCard, additional rewards accrue in the form of points or percentages for cash back.

While price rises continue in earnest, consumers are left with few options. Foremost among them are a cessation or reduction in discretionary spending activity, or a continuation of desired or necessary spending with reduced real outlay over time. Either way, costs are increasing.

Inflation is a Country Buster, but It Can Be Tamed

Inflation is an unwanted reality with economic shocks to the prices of essential goods or services. Sometimes OPEC policies or foreign wars may cause oil and natural gas prices to spiral out of control. Sometimes famine, disease, drought, or flooding can ruin wheat or meat commodities.

When an economy approaches low levels of unemployment, it becomes difficult to maintain a workforce without increasing remuneration.  As such, input costs rise and this has an inflationary effect. We see evidence of plenty of inflation at work with bond prices, where rising inflation devalues real fixed coupon rates, and renders them bad investments. To make the lower relative fixed interest rate attractive, bond prices have to drop.

In an attempt to roll back inflationary effects, central banks raise interest rates. This has the impact of reducing demand for loans, credit card debt, and other forms of costly borrowing. However, it also rewards savers for removing their money from the economy and placing it in fixed interest-bearing institutions.

The central bank a.k.a. the Fed, works to combat inflation by decreasing the money supply via higher interest rates. It is believed that there is no effective way to hedge against inflation, despite popular opinion to the contrary. Some folks believe that gold commodities and real estate are inflation-beating instruments, but it doesn’t always work out that way. So, instead, we focus on real solutions to put more money back in customers’ pockets.