Posted on 10/17/2021 7:04:10 AM PDT by blam
Rising consumer price inflation is not going away. This, of course, is counter to the “transitory” argument made by Federal Reserve Chairman Jerome Powell earlier this year.
Powell’s cohort, Atlanta Fed President Raphael Bostic, recently admitted inflation is not transitory. This admission comes with assurances the Fed will properly manage it. We have some reservations.
The effects of rising consumer prices range far and wide. For one, the pinch rising prices put on consumers is extraordinarily disruptive. It acts like a hefty tax…eroding family budgets that are already stretched. In this ongoing stagflation, personal income gains lag far behind rising consumer prices.
Industrial materials and consumer goods companies also feel the pinch. They can pass on some rising prices to consumers. They can also absorb through lower profit margins some short term price increases. But there are natural limits to what price increases can be absorbed and passed along.
When input costs, including raw material and labor, push the costs of the final manufactured goods above what they can readily be sold for the business motive breaks down. Halting operations makes the most business sense.
One industry feeling the pinch of rising natural gas prices is the fertilizer business. As we noted several weeks ago, several fertilizer plants in the UK have had to suspend operations because of soaring natural gas prices. Here in the US we’re not aware of any fertilizer producers suspending operations. But fertilizer prices are up, nonetheless.
In fact, the Green Markets North American Fertilizer Price Index recently soared to a record high, thus eclipsing the prior record set in 2008. Sky high fertilizer prices will further raise the cost of food production for farmers.
According to the Food and Agriculture Organization’s global food index, food prices are already at a decade high. Plus, when you factor in the grow season in North America doesn’t begin until late-March, the increased fertilizer input costs, could lead to persistent food inflation well into 2022.
But it’s not just food. Here’s one instructive example of how price inflation discombobulates the economy…
Someone Gets Squeezed
The price of cotton just surged to a 10-year high. Rising cotton prices translate into rising jean prices. Levi Strauss has already raised the price of its jeans, thus passing some of the price inflation to consumers.
Levi Strauss is also realigning its business to account for higher input costs. This includes aggressive negotiation with cotton suppliers and cutting out the middlemen. Here are several details:
“In its earnings call, Levi said it has already negotiated most of its product costs through the first half of next year, at very low-single-digit inflation. For the second half of the year, it expects to see a mid-single digit increase. And Levi said it plans to offset that hike with the pricing actions it’s already been taking.
“Levi has been shifting its business from a predominantly wholesale to a mixed base that has a growing share of direct-to-consumer sales. And with strong consumer demand and tightened inventories, it’s been able to sell more products at full price.”
As noted above, the price of cotton is at a 10-year high. Year to date it’s up 47 percent. If cotton accounts for 20 percent of the cost to make a pair of Levi’s jeans, and the company was able to negotiate product costs at a very low-single-digit inflation, then someone in the supply chain is getting severely squeezed.
How long will it be before whoever that is cries uncle, and reneges on its obligations?
For a cotton supplier, that would presumably be when the input costs – land, fertilizer, labor, and processing – are greater than their contracted cost with Levi.
In this respect, Levi may have a plan to account for higher cotton prices, for now. But will they really get a mid-single digit increase during the second half of 2022 as management anticipates?
How much more price inflation can they pass on to consumers?
Are You Prepared for the Mass Repricing of Goods and Services?
The answers to these and other related questions are being considered by management teams across all industries. The simple fact is when the price of raw materials and labor inflate, it becomes very difficult to plan operations and production. Hedging strategies may help manage for rapid, short-term price spikes, but they cannot ultimately prohibit a long-term repricing of materials.
In short, we believe a long-term repricing of materials, goods, and services, is now underway. Certainly, prices will continue to rise and fall to meet supply and demand dynamics. Yet this will take place in a range that is being repriced higher. It has happened before and will happen again…
In 1960, for example, a gallon of gas cost $0.31 per gallon. Similarly, in 1960 a gallon of milk cost $1.00 per gallon. Currently, the average price of gas and the average price of milk are $3.28 per gallon and $3.68 per gallon, respectively. That’s upwards of a 958 percent increase for gas and 268 percent increase for milk over the last 60 years.
Sure, the price of gas and milk could come down some from today’s prices. However, there’s no way they’ll ever drop back to 1960’s prices. They’ve been repriced higher for good.
Why? Are gas and milk somehow more valuable today than they were 60 years ago?
We surmise these essentials have generally the same utility value they always have. Yet the dollar has been greatly devalued. Moreover, this great devaluation is the consequence of rampant dollar debasement policies executed in tandem between the Fed and Congress.
The recent debt ceiling histrionics in Congress – and the elevation of the debt limit for what we believe is the 79th time since 1960 – are merely another milestone in the great dollar debasement saga.
Remember, price inflation starts with expansion of the money supply. These days the expansion of the money supply is conducted in tandem by the Federal Reserve and the Treasury. In short, the Treasury sells new debt to the Federal Reserve, which the Fed buys using credit created out of thin air.
Congress, through its debt ceiling increases, provides the Treasury with an unlimited tab. Congress then spends this limitless money into the economy via spending programs galore. As this new money flows through the economy, prices adjust higher, as the supply of money increases much faster than the supply of goods.
The point is, through policies of mass dollar debasement, we’ve now entered the next stage of the mass repricing of goods and services in the economy. The price of just about everything will adjust upward by several hundred percent – or much, much more – over the next decade.
Pre-pandemic prices are gone forever…
…and your savings, investments, retirement, purchasing power, and the quality of life that you’ve spent a life time planning and working for will be shredded.
Are you prepared?
Thank goodness its hunting season. Between bow and shotgun season we’ll be good for venison all winter.
Absolutely. They want to collapse the system and then blame capitalism so they can enact "The Great Reset" in all western nations.
Noooooooooo! Never buy nasty store tamales. Make your own.
A few months ago there were news articles on major grocery chains buying up lots of items “in case there are shortages in the supply chain ahead.”
The truth was they wanted to make money by buying items low and selling them high later on. Canned or packaged goods with a year or more dates can be sold for a lot more by waiting.
There’s a way to “Whip Inflation Now” - set federal corporate income tax rates to 90% and eliminate capital gains tax preferences until price normalize to the roll call vote declared satisfaction of Congress over a period of three years.
These moves by Levi Strauss and others will blunt some of the inflation Biden’s thugs are creating.
My Levis have a “Made in Pakistan” tag. I liked it better when they were hecho in Mexico.
A crockpot or small dutch oven is invaluable for cooking cheap, tough cuts of meat. Save the bones and scraps for broth and stock.
Grocery stores can only sell meat, if it has crossed State lines, that’s been federally inspected. 27 States have meat inspection that is the equivalent to federal that allows in State sales but I don’t think it gets utilized enough due to grocery chains operating in multiple States while having only one or two distribution centers. As usual, fedgov screwed things up decades ago and created meat processing monopolies.
More info here; https://www.farmtoconsumer.org/wp-content/uploads/2020/06/PRIME-Act-Fact-Sheet-May-2020.pdf
List of States that have their own inspection system; https://www.fsis.usda.gov/inspection/apply-grant-inspection/state-inspection-programs/states-and-without-inspection-programs
A USDA facility must have a federal inspector on hand at all times and guess who pays for that $84.00/hour in the end. https://www.ams.usda.gov/services/grading/fees#meat
He said the all-in cost for slaughtering and processing a beef will be around $500 per head, $150 per pig, $120 per lamb. Maddock noted this price is two to three times what it costs Tyson to slaughter each species. This cost is without taxes, interest, depreciation or profit.
Businesses always start local, then go regional, then national then global. We need to get back to thinking of a US State as it’s own nation state of sorts which was the original intent. ie; A Missouri only grocery chain that can use state inspected facilities that source meat only from within the state.
sometimes I’m thankful I don’t have so much material “wealth” in this world.
The more you have, the more you have to worry about losing.
After they devalue the currency by 50-75% via inflation the interest payments will be more affordable for the government.
Of course your retirement plans and savings will be a smoking crater but progress.../s
My issue with McDs (and presumably other fast food places are doing this as well) is you can lower the prices by using coupons on their phone app.
I refuse to download any apps because I don’t trust ‘em not to steal all kinds of data about me...
“This is why we need to pass the infrastructure bills.”
> Pay back borrowed money with inflated paper. What’s not to like?
Exactly. Government at almost every red state level has no choice. There is no other viable means way to pay back current and soon to be added debt.
Florida's not even on the list...that's depressing.
We need to get back to thinking of a US State as it’s own nation state of sorts which was the original intent. ie; A Missouri only grocery chain that can use state inspected facilities that source meat only from within the state.
Good idea...If we start moving into double digit inflation there will be a lot of rethinking the current systems.
Before Carter's long gas lines and energy inflation there used to a gas station on almost every corner in a mid-sized city. After Carter it all consolidated and only the 'big boys' survived.
As are " ... your savings, investments, retirement, purchasing power,
and the quality of life that you’ve spent a life time planning and working for will be shredded."
Are you prepared?
See the comments for suggestions and advice..!
Ah, I see what's going on with that.
You looked at the price at the Levi's site where they seem to market to gay metrosexuals. The actual price is about 35 bucks.
Of course that's not to say prices aren't going up. I filled my gas tank yesterday afterall.
*** Noooooooooo! Never buy nasty store tamales. Make your own. ***
If the slowness of my enchilada rolling is any indicator, my tamale slathering would be even slower.
Pork for tamales is running about $2.45 a lb right now at HEB & WM.
Lots of ‘incentives’ are up in the air with Biden’s insanity.
If Biden goes full left we’ll have permanent shortages and misery like other commie hellholes. Cuba kept their 1957 chevys running for 50 years... and their citizens died trying to escape the island. It could be that kind of horror...
If Trump defeats Biden in three years Levi Strauss could be making jeans in San Francisco again... It’s going to be an interesting few years...
This whole discussion masks the bigger problem the U.S. faces in the longer term, which is structural DEFLATION as our population ages and we import mediocrity from the Third World to replace it.
I haven't deliberately made any changes in my lifestyle to deal with the ongoing inflationary pressure on prices, but without thinking about it I certainly have -- and most of it was a function of the disruptive government shutdowns related to COVID. Just consider the following:
1. I have no idea what Levi Strauss & Co. charges for a pair of jeans. I haven't bought new clothing in almost three years now. The last time I bought a new pair of shoes was three years ago. I paid $110 for them ... for FOUR pairs of them. They were on sale at a closeout for a major brand name that was shutting down its retail stores and going to exclusive online sales.
2. I got my haircut last week. The barber was apologetic when he told me he had to raise his prices more than 30% over the last six months. I hardly even noticed because I don't get my hair cut as frequently as I used to. Instead of going to the barber once a month, I've only gone five times since March 2020. I'll probably go again right before Christmas. If he raises his prices too much I'll just cut my own hair.
3. I just closed on a new home. It's bigger than I need but it serves multiple purposes. After the preposterous government response to COVID I decided to shut down my company's office and have all the staff work from home. This new home has a 750 square foot finished basement that is already wired and laid out as an office that can accommodate 3-4 staff. My combined payments for the mortgage, taxes and insurance on a four-bedroom home (plus the office) is 40% less than what I was previously paying in rent for a two-bedroom apartment and a 200 square-foot office. And my commute has been reduced from 30 minutes to 30 seconds.
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