It seems that anything can become controversial. Most recently its inflation.Just when it looked like we were turning the corner on the pandemic, inflation started to rear up and then the Russia-Ukraine war heated up.Inflation in most developed nations has continued to rise since late 2021, hitting 40-year highs.PerspectiveInflation may be hitting decades highs in many nations, but for most of those decades inflation had remained very low - particularly in the past two decades. Thus a statistical ‘high point’ might still not be that crushing. Prices in most Western nations are higher than they were last year - but hardly the soaring increases that are rocking Sri Lanka (core inflation rose to 28.4% in May 2022 from 22.0% in April 2022), Turkey (consumer inflation is forecast to accelerate above 80% in the coming months, from 73% in May) or Ethiopia (inflation rose to 36.6 percent in April 2022 from 34.7 percent in March 2022).Inflation is reported as a basket of price increases across a wide range of sectors. A surge in one sector can lead to an overall higher rate of inflation. Thus the price of all goods and services is not increasing by the same amount. Price increases at retail can sometimes be more about reducing the amount of discounts and promotions so more products are sold at full price.Yet, even with unemployment at historic lows and wages for many lower paid jobs rapidly rising, consumers are feeling increasingly pessimistic. Inflation has a strong psychological impact - across most demographics.Today's consumer is stressed, increasingly concerned about their future prospects - and mistrustful of just about everything.Not an ideal environment for price hikes - which typically frighten or anger consumers.The Root of the ProblemIn the U.S. many economists say the root of the problem is rising rents. In Europe its energy costs. In the UK, for example, average gas and electricity prices jumped by 53.5% and 95.5% respectively compared with a year ago due to the Russia-Ukraine war. The EU has felt a similar impact. “The problem is not reduced supply, but increased demand.” - Jason Furman, professor of economic policy at Harvard University’s John F. Kennedy School of Government “Demand for housing is outpacing supply even more than usual, and home prices and rents are rising sharply. Very low interest rates from the Federal Reserve may have combined with covid-related geographic mobility and a desire for more space at home,” said Claudine Sahm, founder of Sahm Consulting and a former economist at the Federal Reserve and at the White House.“Strong real (inflation-adjusted) GDP growth suggests that economic activity has not been significantly hampered by supply problems, and that the recent inflation is mostly driven by demand. Moreover, there is reason to expect demand to remain very strong, which means that inflation will persist,” said Jason Furman, a former chair of President Obama’s Council of Economic Advisors, is professor of the practice of economic policy at Harvard University’s John F. Kennedy School of Government and senior fellow at the Peterson Institute for International Economics. The problem is not reduced supply, but increased demand, he said. Placing Blame - On BrandsEconomists argue that inflation is the end result of too much loose money (zero interest rates, stimulus, surging demand, tight labor markets). Consumer groups are saying that recent price hikes are being driven by corporate profiteering. Corporations claim that they lost money during the pandemic and are now trying to make up for it.Regardless of who is right, Americans have said that inflation is the nation’s top concern right now, according to a recent Pew Research study. In Europe, inflation sits side by side with concerns over an escalation of the Russia-Ukraine war, according several consumer surveys. “Inflation remains on the forefront of consumers’ minds.” Joanne Hsu, Director, The University of Michigan’s sentiment index While the fundamental drivers are there, a growing faction is pointing to corporate greed as a key contributor. While companies are complaining of rising costs (logistics, materials, energy), most are still reporting record profits. There are growing reports of brands and retailers raising prices beyond what is needed to cover rising costs and thus padding out their bottom line.But are companies profiteering, or in some cases does the impact of increased expenses simply lag a quarter or more? And will consumers still buy even at higher prices or will brands who keep stable have an opportunity to grab market share?Not A Good LookWhen companies justify price increases by claiming that rising costs and supply chain issues are to blame - and then report hefty profits and equally as hefty pay increases for top level executives - it is not surprising that consumers cry foul play. Since in most developed nations, most purchases are driven by desire not need, it is easy for consumers to shun brands where they feel they are being taken advantage of. E-commerce has made switching brands and shopping for the best deal accessible to everyone. When inflation is caused by external forces, such as rising global energy prices, then there is a limit as to how effective interest rate rises can be in curbing inflation. While central banks are trying to slow inflation through rate hikes, when inflation is caused by external forces, such as rising global energy prices, then there is a limit as to how effective interest rate rises can be in curbing inflation.One of the biggest speed bumps could be declining consumer sentiment. If consumers perceive themselves to be worse off or if they fear being worse off in the future they’ll cut back on spending, especially on discretionary items. As spending falls, prices will ultimately drop. The University of Michigan’s sentiment index fell to 59.1 in early May, the lowest level since 2011.“Inflation remains on the forefront of consumers’ minds,” Joanne Hsu, director of the survey.In the EU the Economic Sentiment Indicator (ESI) declined -1.7 points month-on-month in April to 104.9, continuing a steady decline since its September 2021 peak of 115.3.Consumer sentiment is not only about the economy. Consumer perception of companies or brands also strongly influences purchasing decisions - not only during economic downturns but during good times as well. There are growing accusations that prices are simply companies profiteering. The coming financial quarters will reveal whether or not this is the case. Even before the pandemic corporate social responsibility (CSR) or ‘brands that care’ was seen as having a growing influence on consumer brand preferences. Thus being seen as price gouging - especially during hard times - could create long lasting ill will that might cost more to fix than any gains from unnecessary price hikes. At the same time, brands that are seen as supporting consumers during hard times could build long term consumer trust and good will - a priceless asset in a competitive market.In The EndThe market will speak for itself. Either consumers will accept price increases or they won’t. Brands will need to place their bets wisely. Rising worker wages have helped shield consumers from some of the price increases. However for many local inflation has outpaced wage gains.In the UK figures from the Office of National Statistics show that wages, excluding bonuses, rose by 4.2% between January and March. But after inflation, regular pay actually fell by 1.2% compared to 12 months ago. The same is true in other key markets. “Looking ahead, there are some reasons to expect demand to cool, but these will need to be weighed in the balance. Fiscal support is winding down everywhere. Interest rates are starting to rise in the U.S. and in Britain, and will increase in Europe very soon. And equity markets have recently fallen back sharply,” said Mr. Furman in an opinion piece in the LA Times.He expects demand to remain strong, backed by excessive household savings. At the same time he sees inflation remaining high, driven by more costlier energy, particularly in Europe due to the Russia-Ukraine war.