JOHN YANG: During three years of stubborn inflation, many American households cut back on routine purchases at the store.

But amid signs that retail prices have started to drop, some companies are rethinking how they decide what to charge.

Ali Rogin has more on the new technology that allows retailers to quickly change prices for items on shelves.

ALI ROGIN: That traditional prices we all see on grocery store shelves may soon be on their way out in favor of what are being called digital shelf labels or electronic shelf labels.

They have small digital screens where prices can be updated remotely, sometimes on a daily basis.

Consumer Advocates worry that this tech could lead to surge pricing seen already with travel, concert tickets and car sharing apps like Uber and Lift.

Last month, Walmart announced that by 2026, more than 2,000 of its stores will have digitized shelf labels.

The largest retailer in the U.S. is now part of a growing number of companies across the U.S. and Europe using this technology to set prices.

Siddharth Cavale is an E commerce and retail reporter at Reuters.

Siddharth, thank you so much for joining us.

How do these digital shelf labels work?

And how common are they in the United States right now?

SIDDHARTH CAVALE, Reporter, Reuters: The digital shelf labels are basically they look very much like paper shelf labels, but they're just small digital screens that will reflect the prices.

Generally they use Bluetooth technology so that they can communicate with mobile devices, which can update the prices very easily.

So far, the adoption of it in the U.S. is not as rampant.

Definitely Walmart is one of the companies that has gone big with this introducing them in their stores.

Kohl's is another retailer that has been using digital shelf labels since 2015.

We also know of Kroger and Instacart testing it now but we still haven't seen them in stores yet.

So we won't see it at least need you and regular customer, won't see it for the next two or three years unless you show up regularly at Walmart.

ALI ROGIN: I should also mention, of course that this technology is prevalent in in parts of Europe right now.

But I want to ask you about what retailers say about the benefits of these electric store labels, and how those benefits might end up trickling down to customers.

SIDDHARTH CAVALE: Right.

So, I'll just start from the Walmart's perspective.

I mean, when they introduced this, they were speaking about how this could help them update prices more easily.

Generally, what would take a week for a worker would now just take minutes on the second benefit of this is that it will replace paper shelf labor, so it will replace waste.

And so they said that they could cut back on paper waste by 40 percent.

They also said that this is a very easy technology for them to keep associates abreast of the inventory.

And they also want to use it in letting I guess workers know how to pick up products or online orders.

Nowadays retailers are using their stores at centers fulfillment centers, they quickly and associate can figure out where in the store the product is, and can fulfill that order.

So there are multiple ways they can use this technology.

In fact, sometimes you retailers are using it for you know, displaying QR codes.

So for example, if you buy a Heinz ketchup, you never -- you don't know if it's gluten free or allergen free, or you know, the fat content in it.

These are things that are not displayed on the label easily.

But think of getting a scan QR code or QR code right on the digital shelf label where you can just rip out your phone and see all that information easily.

So that's another aspect where these digital shelf labels are being used to help the customer.

ALI ROGIN: And I know that Walmart and other stores are arguing that those efficiencies could lead to savings for the customer but I do want to ask about the flip side of that which is consumers and advocates are nervous that there might be dynamic pricing employed in which retailers increased prices of items based on demand, how are companies responding to that?

And what's the likelihood that that sort of practice is going to take place.

SIDDHARTH CAVALE: So dynamic pricing is generally legal in the U.S., and any retailer is, you know, able to do it if they want to.

But generally, because of the backlash about, you know, again, surge pricing in Walmart, they will not be using it for surge pricing, if they wouldn't be using it, it will be mostly to cut prices, or to offer promotions or to display promotions and discounts.

And to consumer advocates, there is concern that there could be, you know, they could always raise prices.

And this has happened in the past, for example, Coca Cola in the 90s, tried to introduce a vending machine where they would raise prices when the weather was really hot, and that faced a lot of backlash, and they just shut that program.

So there's a lot of scrutiny on price right now.

And surge pricing at the grocery store, especially prices of grocery stores, it'd be really hard for retailers to get away with it.

ALI ROGIN: Why are these efforts being employed now?

As we mentioned, they've already been the norm in parts of Europe and indeed parts of the United States for a while.

Is this just the pace of modernization?

Or are these efforts by retailers to address inflation concerns or a combination of the two?

SIDDHARTH CAVALE: Most of it is retailers are trying to upgrade their stores by using automation.

They're trying to use, you know, brake materials, like for example, LEDs, now they're moving towards digital shelf labor.

So I would say that one part of this is definitely modernization.

The other part is also yes, this also helps with addressing inflation concerns, then they do get digital price labels, what will happen is they'll be able to like update prices to market conditions more easily.

And they won't be that lag between what the market says and what you can actually put in the store also helps you with managing your inventory levels much better, especially at times when there is low demand and you want to sell products more quickly.

Think about a milk carton that is getting in is expiring within two days you want it out of your store quickly.

So in those instances, you can maybe cut the price by heart so people can like buy more quickly.

So there are ways in which they can, you know, address you can bring in inflationary pressures down on their business, and they can also reduce costs.

So for example, when I mentioned earlier that the people shelf tags were a big environmental issue and a big cost for them by replacing the paper shop tags with digital shelf tags.

They could reinvest the savings back into price.

ALI ROGIN: Siddharth Cavale with Reuters, thank you so much for breaking this down for us.

SIDDHARTH CAVALE: Thank you for having me.