With or without me, the World does keep on turning. I may help a little but everyone seems to do ok when I am away.
Now that I am back, I am not sure of what might be the biggest business story of the day is.
My sense is that for the man or woman on the street it’s still inflation.
Yes, the Fed has been very aggressive in raising rates and that surely has helped slow or reverse inflation’s rise but we are still dealing with higher prices everywhere and as I have said repeatedly, I am not buying the original inflation story.
I haven’t bought it since the earliest days and I refuse to believe the explanations now.
Let’s take oil for example. If you just look at the oil market you can see what’s wrong with the whole inflation story. In November of last year oil spiked to around 90 dollars a barrel. Supply disruption, larger than expected demand, Yadda, Yadda, Yadda. At the pump, 3.89-4.09 a gallon in the NY Metropolitan area. I guess it makes sense but oil prices fell out of bed. 68 dollars a barrel in mid march. Pump prices came down to 3.29-3.39 a gallon. Sort of makes sense as well. However, there have been a couple of price spikes and price drops since and somewhere along the line the retailers missed the memo. Oil is around 72 dollars a barrel and gas is 3.59-3.69 a gallon. My public school math says it should be around 3.35-3.41 a gallon.
The point is, products should be priced based on supply, cost of ingredients and a profit. If supply is there and the cost of ingredients have come down the last thing that should be adjusted is the amount of profit a company should expect.
This period of inflation has seen ridiculously large increases in profits for producers and while I am not against profits (I am a capitalist, remember), I am against abusing pricing to create abhorrent profits.
Relax. I am not calling for price controls and I am not calling for increased taxes to take advantage of surging corporate profits. I just think that people should remember the way producers treated the consumers during the last 2 1/2 years.
Producers raised prices because they could, not because they had to.
Go back to Economics 101 and look up causes for inflation. 70% of the time it has to do with rising wages. Shortages of workers to fill certain roles makes hiring the available workers more competitive and thus causing higher wages which are then passed on to the consumers.
That didn’t happen this time around. Yes, there were worker shortages but that came after the prices began to rise. The excuse was supply chain issues and commodity prices were out of whack. Oil prices could not have been the initial culprit either because if you recall, at the height of the pandemic, oil prices had dropped to their lowest level in decades. The pandemic upended everything and the result was manufacturers now had pricing power and they took advantage of it.
A recession may or may not be in the offing but if we do get one I predict that that pricing power will return to the consumer. To Hell with $3.39 a pound Philadelphia Cream Cheese!
Be that as it may, we do still have inflation and no matter what the Fed does in the next two months, it won’t help quick enough.
During the beginning of the pandemic the service sector suffered the most. No one was going out to eat. No one was traveling. Workers were home, ordering from Grub hub and making TikTok videos. It was mayhem and now that things are getting back to normal, the cost of getting those workers back to those service industries has risen as well.
So, the discounts you used to get traveling don’t exist. The airlines have not done a great job of getting their service back to acceptable levels. Hotels won’t provide fresh towels everyday unless you call and ask for them. Yet, airlines are charging more. Hotels are charging more.
Walmart, Target, Home Depot have all gotten their act together and resumed business as usual. Prices are higher but they are stocked and ready to go.
The airlines? Not so much. Let’s put it bluntly, flying any airline except maybe Emirates sucks. They have never treated their customers with respect and now it’s like they are doing us a favor by letting us be treated like lab animals before PETA. I have always hated the airline industry and now it is worse because the prices have gone up while the experience has gotten worse, if that is evenly possible.
Hotels? They have raised rates and given you less for your money. I will say this though, they have at least tried to make you comfortable and they do know that there are competitors out there so the experience, while more expensive, is not as bad as flying.
I may have digressed here a little but the point is this: Inflation is here. It is here to stay until a real recession takes place. That real recession will most certainly impact earnings for most producers and at the other side of this coming recession we will hopefully see a better pricing model. One that both consumer and producer can live with. Right now, it isn’t working.
Excellent, and when is that coming....... Just kidding, Welcome Back, yes, you were missed!