Psychology behind price surges – The Hindu

On September 19, U.S. President Donald Trump signed a proclamation raising the annual fee for H-1B visas to a staggering $1,00,000 a year. Almost instantly, immigration attorneys and firms such as Microsoft and Amazon advised H-1B visa-holding staff outside U.S. to return before the proclamation kicked in on September 21.

Many visa holders rushed to book flights and several travel agents observed a sharp surge in last-minute bookings to the U.S. The sudden panic-driven demand pushed ticket prices higher, illustrating a textbook case of fomoflation: a phenomenon wherein Fear Of Missing Out (FOMO) coupled with surging demand resulted in rapid flight ticket inflation.

For instance, a passenger secured a one-way ticket to Dallas on Qatar Airways spending about $2,000, which is more than twice the cost of original round-trip fare.

How Fomoflation operates

Another example of Fomoflation is Sri Lanka’s economic crisis of 2022. Triggered by near-depletion of foreign exchange reserves, the country faced acute fuel shortages, forcing the government to repeatedly raise petrol and diesel prices. What followed soon was panic buying and people started hoarding petrol. This FOMO-driven rush pushed prices even higher. The cycle of panic-driven demand and resultant price surges illustrates how Fomoflation operates. Unlike usual inflation, which is an outcome of macroeconomic factors, Fomoflation arises from behavioral psychology, often amplified by social media.

In short, Fomoflation occurs when consumer behaviour (demand psychology) and market or supply pressures combine to create rapid inflation even in essentials, where prices rise faster than underlying economic factors would justify.

Fomoflation can also be seen in consumer goods. For example, during festive seasons, demand for staples such as pulses and cooking oil spikes after media reports highlight potential shortages or price hikes. Influenced by the reports, consumers rush to stock up, pushing prices higher even when supply is sufficient. Therefore, it is the fear of ‘scarcity’ or the FOMO which triggers buying frenzy, setting off an ‘artificial demand’ loop and eventual price rises.

Dealing with Fomoflation

Consumers could shield themselves from its effects by staying alert to the behavioral triggers that drive it. Find out if buying decisions are influenced by FOMO, media reports or social pressure. Understand if there is a real need for the item. Plan purchases ahead and avoid last-minute rushes, especially during festive seasons. Try to maintain a small buffer of essentials at home so that you don’t have to respond instantly to every perceived shortage. You can also compare prices across stores and online platforms to avoid paying inflated rates. For larger purchases/investments, analyse and research if price movement is justified or hype-driven.

Key is balance

By staying patient, informed and disciplined, you can break the loop of ‘artificial demand’ and avoid inflated prices. Allow time for the situation to settle.

For instance, in H-1B visa fee proclamation, travellers who waited would have realised the $1,00,000 fee applied only to new applicants. Those who rushed to book flights allowed FOMO to drive prices higher.

In cases like Sri Lanka’s fuel shortage, patience alone wouldn’t help. The key is balance: combine patience with informed, proactive action. Assess if the scarcity is real, exaggerated, or driven by hype and act judiciously. Then, you can avoid paying FOMO-inflated prices.

(The writer is an NISM & CRISIL-certified Wealth Manager and certified in NISM’s Research Analyst module)