Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Price Creep

What it is:

Price creep refers to a gradual increase in the price of a good or service.

How it works (Example):

Price creep usually occurs because production costs have increased. Usually, producers will attempt to fight price creep by using cheaper materials and labor or by changing packaging sizes, but in some cases producers feel they have no choice but to raise prices.  The concept is most commonly used in discussions about the retail value of goods and services.

Price creep can be easily observed at the grocery store. When General Mills is forced to pass along cost increases to a store owner, the store likely passes those costs along to the consumer via higher prices. But if input costs eventually decline, it is unlikely that either General Mills or the store owner would be inclined to pass along the cost savings to customers. In most cases, price increases are sticky.

Why it Matters:

There is a limit to the price increases a market can bear. High prices can drive customers away, especially if the increase is large and sudden. Thus, as the example shows, the key to price creep is protraction so that consumers either don't notice the change right away or gradually get used to paying more.