Bernanke's statement that inflation is transitory doesn't hold much water with me. Nothing is as powerful as a trend; in finance and for inflation the trend has been up. I went to the gas station last night to put a few dollars of the cheap stuff into my gas guzzling Ram 1500 Hemi. I was a little surprised to see that gas at my local station had jumped 4% since Friday.
As for the ISM report, the prices paid component came in at a new high for the trend, stretching back to July of 2008. The 85.5 reading for prices paid was above consensus. Perhaps more alarming for the trend is the fact that producers are not yet feeling the problems from Japan. What prices paid will look like in a few months when Japan becomes a real factor, I can't say. I don't want to speculate, but I can say with some degree of confidence that it will not be helpful.
We've already seen manufacturers starting to pass price increases along in a variety of ways, but this trend hasn't picked up much steam yet, I believe it will as manufacturers will hang in there as long as they can with efficiency measures until their margins are so tight that they are no longer sustainable.
Our family Cafe had to increase menu items across the board about this time last year so the trend has been in effect for quite some time and from first hand experience, I can tell you the last thing you want to do as a producer is pass price increases along to customers in this economic environment; it creates a downward spiraling cycle that effects the bottom line in a harsh manner and it's very difficult to come back from those increases. Customers have moved on and getting them back, even if you can lower your prices in the future becomes an expensive endeavor. Our cafe went the efficiency route. Portions were smaller, staff was laid off (actually cut in half), everything was measured to exacting standards, but in the end, every wholesaler kept increasing prices and adding surcharges.
Of course the real danger is stagflation. The Chicago PMI from last week showed employment taking a hit. How and why the Fed tries to portray inflationary trends excluding "volatile" gas and food is beyond me, few other central banks do the same, but these are the real costs that are killing the middle class and especially the unemployed. Just try to schedule an interview for every day of the week while you collect $275 in unemployment, gas alone eats a big part of that money.
So no news here, same trend, the news will come in the form of corporate capitulation when they hike prices like NKE did.
In the red box is NKE's announcement of an across the board price hike.
No comments:
Post a Comment