Are You Prepared for the Mass Repricing of Goods and Services?

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 staglation, 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...

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