7 ms·

I know the common refrain with this inflation is that it's temporary due to COVID, but when I talk to suppliers and customers I'm finding that everyone's costs

by bshipp 5y ago

I know the common refrain with this inflation is that it's temporary due to COVID, but when I talk to suppliers and customers I'm finding that everyone's costs are skyrocketing this year (and last, as well). I have no illusions that companies will immediately lower their prices the moment their input costs start dropping, not after weathering decades of pressure from buyers to race to the bottom. They are going to cling to these gains for as long as possible, which is going to influence downstream prices for years to come. More importantly, the inflation is showing up in gas and highly sensitive related costs like transportation. But businesses are currently in the process of baking those costs into current and future B2B contracts, which are being negotiated now. We are just entering the period where all of those renegotiated higher-cost contracts are going to start showing up in final product values. In my humble opinion, I expect to see CPI start reflecting cost increases throughout the economy over the next 12-18 months.

samwillis 5y ago
It’s a tiny datapoint but my B2C company is probably going to put prices up in January. Our costs have risen, we have held off as long as possible but will probably have to make the change.
BobbyJo 5y ago
Totally agree. Historically, prices only go down during recessions, and only barely. The only way these gains don't stick is if our economy falls off a cliff.
- WalterBright 5y ago
  Before 1914, when the US switched to a fiat money system, inflation netted out to zero change for the previous century. Since then, inflation has stayed pretty consistently positive. Inflation is caused by the government printing money to spend rather than raising the money via taxation. It's a politically cheap way to buy votes, which is why fiat money systems became universal among governments.
  - mistrial9 5y ago
    not an expert here but this is not entirely accurate -- a USA Federal system of single currency was initiated around that time, but there were multiple other currencies then. Is it accurate to say that every currency in use on the continental North America was gold-backed in the year 1899? doesn't seem right.. info welcome
    - WalterBright 5y ago
      The US did have a single currency before 1914. But 1914 saw the creation of the Federal Reserve Bank system, which is a fiat money system. It was still backed by gold, but the events of 1929 proved that unworkable (the runs on the banks were the inevitable result), and FDR suspended that.
beezle 5y ago
Please don't perpetuate they myth of energy prices being the source of inflation. To start, the price of WTI (US Crude) was well above $100 in 2008, peak over $140. The period from late 2010 to 2015 was spent between $80 and $110. As recently as 2018 H2 the price was on a $70 handle and 2015-2019 from $35-$75, compared to the $60-85 range of 2021 and $70 today. The period 2003-2009 for natural gas was $6 to well over $12 per Mcf. The recent peak was on a $6 handle and is now back below $4. Energy prices have been trading in the same price band for much of the past 25 years with brief runs outside (2008 above and 2020 below).
- SavantIdiot 5y ago
  You are mixing up the price of crude with the price of energy. Crude needs to be refined and transported as gas. That's where the huge spike is coming from. https://www.usinflationcalculator.com/inflation/gasoline-inflation-in-the-united-states/ https://www.usinflationcalculator.com/inflation/gasoline-inf...
  - beezle 5y ago
    I'm not mixing up anything. The primary input to the price of gasoline is..crude oil. Link below is gasoline futures back twenty plus years. Please tell me again that we have not previously had significantly higher prices for a significantly longer period of time? I'm not seeing that. https://finviz.com/futures_charts.ashx?t=RB&p=m1 https://finviz.com/futures_charts.ashx?t=RB&p=m1 Compare that chart to the also availbe WTI, Brent, natural gas and heating oil.
shostack 5y ago
I'm curious how much is also being fueled by the current markets. The US economy had a large amount of rocket fuel dumped into it repeatedly. Asset prices surged, but with the increase in business costs, perhaps businesses found customers more willing to pay because of said asset increases, thus enabling this trend to continue because demand still outstrips supply? In a climate where interest rates are challenging to increase and the market can't be allowed to decline, it feels to someone uninformed like myself that it would naturally be felt instead through inflation. The question is how high prices will go, what the warning signs of hyper inflation are, and whether we are at risk of that. Economically, rapidly devaluing the dollar seems like it would be a major strategic win for other nations seeking to unseat the dollar as the global reserve currency. I'd love for someone more educated in these matters to tell me why all of this is wrong.
- simonh 5y ago
  It's a mixed picture, as always. Inflation is up across the world, even in countries and regions that didn't see the kinds of stimulus the US used. However inflation in the US is higher than in developed countries that didn't use as much stimulus. So not all the blame can be laid on US policy, but some of it can. Whether the difference is actually going to cause significant extra pain, or whether the extra stimulus will help the US ride out the pandemic better, is up in the air at the moment IMHO.
  - xapata 5y ago
    Calling it blame implies that inflation is bad. Inflation is not intrinsically bad. It's bad to the extent it creates friction in the economy. Currently, the US economy is growing very well. One might anticipate that inflation will eventually drag down economic growth, but that's far from certain. Japan proved that low inflation doesn't cause high growth, and many recent periods in the US had both low inflation and low growth. In contrast, the inflation today appears to be caused by supply trouble. Alleviating supply pressure is great motivation for innovation and efficiency improvements. Much better economic activity than simply cutting costs and trying to capture market share in a low growth market.
slg 5y ago
>I have no illusions that companies will immediately lower their prices the moment their input costs start dropping, not after weathering decades of pressure from buyers to race to the bottom. They are going to cling to these gains for as long as possible, which is going to influence downstream prices for years to come. In fact there is evidence of this basically already happening as some industries like meat packers[1] are raising prices well above their increase in costs because "inflation" is a great scapegoat to raise prices and increase profits. Let this serve as a reminder that costs don't dictate prices in our economy, market forces dictate prices. All costs represent is a long term minimum price. The only way decreasing costs will yield decreasing prices is if there is adequate competition giving consumers an alternative to overpriced products. [1] - https://www.reuters.com/business/meat-packers-profit-margins-jumped-300-during-pandemic-white-house-economics-2021-12-10/ https://www.reuters.com/business/meat-packers-profit-margins...
- partiallypro 5y ago
  Tbf some of this is White House fluff to cover themselves politically. I have family in the beef industry and meat packing is backlogged heavily. Wait times are insane unless you're a big player. So it's no wonder profits would jump when the whole industry is log jammed. Some producers are actually running at a loss and waiting on contract renewals. So the idea that this is all about greed is nonsense.
  - slg 5y ago
    >Wait times are insane unless you're a big player. And there is the point you are missing from my original comment. As I said, you need competition for prices to stay connected to costs. The big players control something like 80-90% of the market. They have the power to monopolize the supply pushing out the smaller players while simultaneously raising prices. How else would a backlog lead to increased profits if the backlog wasn't used as an excuse to raise prices beyond the increased costs?
    - partiallypro 5y ago
      I don't understand what you mean. If you are log jammed, you try to raise your prices to both defer non-essential customers and to expand your production capacity. That has nothing to do with monopolization. If you had 2000 companies all competing the price would not be flat, because that "competition" doesn't neccessarily mean there is more capacity. The packing companies are overwhelmed and are having a hard time finding workers. Do you expect them to just run at no profit or not price adjust based on the new demand surge? If you are backlogged that means you already have business that is not processed which feeds into your short term profits anyhow. It's no wonder you have increased profits when you already have a backlog of business and you've had to increase prices for the demand surge.
rkk3 5y ago
> I know the common refrain with this inflation is that it's temporary due to COVID Public figure's also don't want to yell fire in a crowded theater. Because that can directly feed whichever economic bogey-man people are worried about. > In my humble opinion, I expect to see CPI start reflecting cost increases throughout the economy over the next 12-18 months. The data is already there if you look. https://twitter.com/BillAckman/status/1469438747292880898 https://twitter.com/BillAckman/status/1469438747292880898
- rstuart4133 5y ago
  Quoting: "The largest owners of nationwide single family rentals are reporting 17% YoY rent increases." Yep, that pretty much what you would expect. Governments (everywhere) money into the economy to reduce the impact of COVID. Because of COVID there was literally stuff all to spend it on and interest rates are at record lows, so what followed (at least here in Australia) was relators called a property boom, which to some us looked remarkably like a property bubble. Record house prices, paid for with money gifted by the government leading to record leveraging of incomes. What could possibly go wrong? Those record repayments have to be paid for somehow - and governments have pulled the interest rate lever so hard it's maxed out - they can't relieve the pressure this time by lowering them like they have so many times in the recent past. So rents must go up, but maybe not a lot at first. Even so, rents going up will push inflation up, even if it just a little bit. Inflation will start pushing interest rates up, but with interest rates hovering around 1% at one point even one basis point is a near a 1% rise. So that will need a 1% rise in rents to cover it. Have few multiple basis points rises in a year, and it ain't hard to get to 17% YoY rise in rents. That will of course drive inflation up even further, which of course will drive up repayments and ultimately rents up again. It looks like a positive feed back loop which will end when interest rates get so high massive amounts of money move from property and stocks into cash deposits. But that's a long way off, so we are just at the start of it. Real estate prices may not actually drop in dollar terms, but inflation will force everything thing else up and so effects of the original COVID spending spree will be unwound. Not a big deal really, and certainly not worth the "western capitalist economy as we know it is dying" click bait headlines it will generate.
space_fountain 5y ago
My understanding is that when people say the inflation is temporary they don’t necessarily mean prices will go down, just that they won’t continue to go up. This is important because some of the worst and hardest to control bits of inflation comes when actors start pricing in continued inflation
shmatt 5y ago
Important to differentiate a) prices stay steady after costs go down - inflation goes down close to 0% b) prices go back down to pre-covid - deflation I don't think anyone is expecting deflation. The outcome of scenario a is low inflation and skyrocketing profits which then causes the stock market to break new records daily. More of the same of what we saw 2009-2019
jameslk 5y ago
Inflation is not "transitory" anymore according to the Fed chairman [0]. It's now just inflation and will be permanently affecting prices (i.e. higher prices today and the future will be staying higher, unless an unlikely deflation event were to push them back down) [1]. Anyone who is or was saying inflation is temporary or transitory is incorrect, as they've always have been. 0. https://finance.yahoo.com/news/fed-chairman-jerome-powell-retires-the-word-transitory-in-describing-inflation-162510896.html https://finance.yahoo.com/news/fed-chairman-jerome-powell-re... 1. https://www.lynalden.com/inflation/#transitory https://www.lynalden.com/inflation/#transitory
RC_ITR 5y ago
Stopping inflation != lowering prices, because it's a measure of change, not absolute levels. That's why it's represented as a y/y %. We were in a very weird time from 1990-2020 where the price of goods actually declines in many categories due to a lot of crazy and undefined factors (like China's currency peg, but also 1000000 other things). We may return to that period, we may not, but even just slower inflation is fine for the economy, AND (this is the real saving grace) our Y/Y comps go from being 'low inflation COIVD era' comps to being 'high inflation 2021' comps in March 2021.
basch 5y ago
>They are going to cling to these gains for as long as possible, which is going to influence downstream prices for years to come. They will get undercut by somebody new who doesn't care about making up for last years profit loss? How does Under Armour come out of somebodies basement to take on Nike? It might take a little time, but if somebody is overcharging just because they can, and they sell a commodity product, competition will arise. Luxury goods and marketing taxes may last longer. Shipping costs will go down someday. If inflation flatlines for a decade, then this happens again in a decade. Maybe this years inflation is catch up for the last decade of flatness.
ecf 5y ago
The pessimist in me thinks that global supply chain issues were self-imposed as a justification for raising prices.

by bshipp 5y ago

samwillis 5y ago

It’s a tiny datapoint but my B2C company is probably going to put prices up in January. Our costs have risen, we have held off as long as possible but will probably have to make the change.

BobbyJo 5y ago

Totally agree. Historically, prices only go down during recessions, and only barely. The only way these gains don't stick is if our economy falls off a cliff.

WalterBright 5y ago
Before 1914, when the US switched to a fiat money system, inflation netted out to zero change for the previous century. Since then, inflation has stayed pretty consistently positive. Inflation is caused by the government printing money to spend rather than raising the money via taxation. It's a politically cheap way to buy votes, which is why fiat money systems became universal among governments.
- mistrial9 5y ago
  not an expert here but this is not entirely accurate -- a USA Federal system of single currency was initiated around that time, but there were multiple other currencies then. Is it accurate to say that every currency in use on the continental North America was gold-backed in the year 1899? doesn't seem right.. info welcome
  - WalterBright 5y ago
    The US did have a single currency before 1914. But 1914 saw the creation of the Federal Reserve Bank system, which is a fiat money system. It was still backed by gold, but the events of 1929 proved that unworkable (the runs on the banks were the inevitable result), and FDR suspended that.

beezle 5y ago

Please don't perpetuate they myth of energy prices being the source of inflation. To start, the price of WTI (US Crude) was well above $100 in 2008, peak over $140. The period from late 2010 to 2015 was spent between $80 and $110. As recently as 2018 H2 the price was on a $70 handle and 2015-2019 from $35-$75, compared to the $60-85 range of 2021 and $70 today. The period 2003-2009 for natural gas was $6 to well over $12 per Mcf. The recent peak was on a $6 handle and is now back below $4. Energy prices have been trading in the same price band for much of the past 25 years with brief runs outside (2008 above and 2020 below).

SavantIdiot 5y ago
You are mixing up the price of crude with the price of energy. Crude needs to be refined and transported as gas. That's where the huge spike is coming from. https://www.usinflationcalculator.com/inflation/gasoline-inflation-in-the-united-states/ https://www.usinflationcalculator.com/inflation/gasoline-inf...
- beezle 5y ago
  I'm not mixing up anything. The primary input to the price of gasoline is..crude oil. Link below is gasoline futures back twenty plus years. Please tell me again that we have not previously had significantly higher prices for a significantly longer period of time? I'm not seeing that. https://finviz.com/futures_charts.ashx?t=RB&p=m1 https://finviz.com/futures_charts.ashx?t=RB&p=m1 Compare that chart to the also availbe WTI, Brent, natural gas and heating oil.

shostack 5y ago

I'm curious how much is also being fueled by the current markets. The US economy had a large amount of rocket fuel dumped into it repeatedly. Asset prices surged, but with the increase in business costs, perhaps businesses found customers more willing to pay because of said asset increases, thus enabling this trend to continue because demand still outstrips supply? In a climate where interest rates are challenging to increase and the market can't be allowed to decline, it feels to someone uninformed like myself that it would naturally be felt instead through inflation. The question is how high prices will go, what the warning signs of hyper inflation are, and whether we are at risk of that. Economically, rapidly devaluing the dollar seems like it would be a major strategic win for other nations seeking to unseat the dollar as the global reserve currency. I'd love for someone more educated in these matters to tell me why all of this is wrong.

simonh 5y ago
It's a mixed picture, as always. Inflation is up across the world, even in countries and regions that didn't see the kinds of stimulus the US used. However inflation in the US is higher than in developed countries that didn't use as much stimulus. So not all the blame can be laid on US policy, but some of it can. Whether the difference is actually going to cause significant extra pain, or whether the extra stimulus will help the US ride out the pandemic better, is up in the air at the moment IMHO.
- xapata 5y ago
  Calling it blame implies that inflation is bad. Inflation is not intrinsically bad. It's bad to the extent it creates friction in the economy. Currently, the US economy is growing very well. One might anticipate that inflation will eventually drag down economic growth, but that's far from certain. Japan proved that low inflation doesn't cause high growth, and many recent periods in the US had both low inflation and low growth. In contrast, the inflation today appears to be caused by supply trouble. Alleviating supply pressure is great motivation for innovation and efficiency improvements. Much better economic activity than simply cutting costs and trying to capture market share in a low growth market.

slg 5y ago

>I have no illusions that companies will immediately lower their prices the moment their input costs start dropping, not after weathering decades of pressure from buyers to race to the bottom. They are going to cling to these gains for as long as possible, which is going to influence downstream prices for years to come. In fact there is evidence of this basically already happening as some industries like meat packers[1] are raising prices well above their increase in costs because "inflation" is a great scapegoat to raise prices and increase profits. Let this serve as a reminder that costs don't dictate prices in our economy, market forces dictate prices. All costs represent is a long term minimum price. The only way decreasing costs will yield decreasing prices is if there is adequate competition giving consumers an alternative to overpriced products. [1] - https://www.reuters.com/business/meat-packers-profit-margins-jumped-300-during-pandemic-white-house-economics-2021-12-10/ https://www.reuters.com/business/meat-packers-profit-margins...

partiallypro 5y ago
Tbf some of this is White House fluff to cover themselves politically. I have family in the beef industry and meat packing is backlogged heavily. Wait times are insane unless you're a big player. So it's no wonder profits would jump when the whole industry is log jammed. Some producers are actually running at a loss and waiting on contract renewals. So the idea that this is all about greed is nonsense.
- slg 5y ago
  >Wait times are insane unless you're a big player. And there is the point you are missing from my original comment. As I said, you need competition for prices to stay connected to costs. The big players control something like 80-90% of the market. They have the power to monopolize the supply pushing out the smaller players while simultaneously raising prices. How else would a backlog lead to increased profits if the backlog wasn't used as an excuse to raise prices beyond the increased costs?
  - partiallypro 5y ago
    I don't understand what you mean. If you are log jammed, you try to raise your prices to both defer non-essential customers and to expand your production capacity. That has nothing to do with monopolization. If you had 2000 companies all competing the price would not be flat, because that "competition" doesn't neccessarily mean there is more capacity. The packing companies are overwhelmed and are having a hard time finding workers. Do you expect them to just run at no profit or not price adjust based on the new demand surge? If you are backlogged that means you already have business that is not processed which feeds into your short term profits anyhow. It's no wonder you have increased profits when you already have a backlog of business and you've had to increase prices for the demand surge.

rkk3 5y ago

> I know the common refrain with this inflation is that it's temporary due to COVID Public figure's also don't want to yell fire in a crowded theater. Because that can directly feed whichever economic bogey-man people are worried about. > In my humble opinion, I expect to see CPI start reflecting cost increases throughout the economy over the next 12-18 months. The data is already there if you look. https://twitter.com/BillAckman/status/1469438747292880898 https://twitter.com/BillAckman/status/1469438747292880898

rstuart4133 5y ago
Quoting: "The largest owners of nationwide single family rentals are reporting 17% YoY rent increases." Yep, that pretty much what you would expect. Governments (everywhere) money into the economy to reduce the impact of COVID. Because of COVID there was literally stuff all to spend it on and interest rates are at record lows, so what followed (at least here in Australia) was relators called a property boom, which to some us looked remarkably like a property bubble. Record house prices, paid for with money gifted by the government leading to record leveraging of incomes. What could possibly go wrong? Those record repayments have to be paid for somehow - and governments have pulled the interest rate lever so hard it's maxed out - they can't relieve the pressure this time by lowering them like they have so many times in the recent past. So rents must go up, but maybe not a lot at first. Even so, rents going up will push inflation up, even if it just a little bit. Inflation will start pushing interest rates up, but with interest rates hovering around 1% at one point even one basis point is a near a 1% rise. So that will need a 1% rise in rents to cover it. Have few multiple basis points rises in a year, and it ain't hard to get to 17% YoY rise in rents. That will of course drive inflation up even further, which of course will drive up repayments and ultimately rents up again. It looks like a positive feed back loop which will end when interest rates get so high massive amounts of money move from property and stocks into cash deposits. But that's a long way off, so we are just at the start of it. Real estate prices may not actually drop in dollar terms, but inflation will force everything thing else up and so effects of the original COVID spending spree will be unwound. Not a big deal really, and certainly not worth the "western capitalist economy as we know it is dying" click bait headlines it will generate.

space_fountain 5y ago

My understanding is that when people say the inflation is temporary they don’t necessarily mean prices will go down, just that they won’t continue to go up. This is important because some of the worst and hardest to control bits of inflation comes when actors start pricing in continued inflation

shmatt 5y ago

Important to differentiate a) prices stay steady after costs go down - inflation goes down close to 0% b) prices go back down to pre-covid - deflation I don't think anyone is expecting deflation. The outcome of scenario a is low inflation and skyrocketing profits which then causes the stock market to break new records daily. More of the same of what we saw 2009-2019

jameslk 5y ago

Inflation is not "transitory" anymore according to the Fed chairman [0]. It's now just inflation and will be permanently affecting prices (i.e. higher prices today and the future will be staying higher, unless an unlikely deflation event were to push them back down) [1]. Anyone who is or was saying inflation is temporary or transitory is incorrect, as they've always have been. 0. https://finance.yahoo.com/news/fed-chairman-jerome-powell-retires-the-word-transitory-in-describing-inflation-162510896.html https://finance.yahoo.com/news/fed-chairman-jerome-powell-re... 1. https://www.lynalden.com/inflation/#transitory https://www.lynalden.com/inflation/#transitory

RC_ITR 5y ago

Stopping inflation != lowering prices, because it's a measure of change, not absolute levels. That's why it's represented as a y/y %. We were in a very weird time from 1990-2020 where the price of goods actually declines in many categories due to a lot of crazy and undefined factors (like China's currency peg, but also 1000000 other things). We may return to that period, we may not, but even just slower inflation is fine for the economy, AND (this is the real saving grace) our Y/Y comps go from being 'low inflation COIVD era' comps to being 'high inflation 2021' comps in March 2021.

basch 5y ago

>They are going to cling to these gains for as long as possible, which is going to influence downstream prices for years to come. They will get undercut by somebody new who doesn't care about making up for last years profit loss? How does Under Armour come out of somebodies basement to take on Nike? It might take a little time, but if somebody is overcharging just because they can, and they sell a commodity product, competition will arise. Luxury goods and marketing taxes may last longer. Shipping costs will go down someday. If inflation flatlines for a decade, then this happens again in a decade. Maybe this years inflation is catch up for the last decade of flatness.

ecf 5y ago

The pessimist in me thinks that global supply chain issues were self-imposed as a justification for raising prices.