Inflation – American Consumers Fighting Back

| October 5, 2007

If you believe some of the negative financial press the American masses are a fickle mob of spendthrifts that mindlessly blow everything they have and then some without a care.

In contrast to that, I offer a story from the Wall Street Journal:

Food Makers Struggle To Pass On High Costs

High commodity prices have soured the outlook for Dean Foods Co.’s earnings — again. Yesterday, the Dallas dairy giant lowered its profit forecast for the second time this year as consumers began turning to cheaper private-label milk rather than accept price increases on Dean’s branded milk.

What this means is that it is costing the people who make the food that you and I buy at the store more money to produce. These companies have shareholders and investors, and so they work to ensure that they make what money they can from the business. When the cost of goods, equipment and labor go up, they need to charge more for the value they are adding to the process, so they raise their prices.

But the American consumer now has access to so many choices that they “shop around”, and any company that raises their prices end up selling less. This is a hideous squeeze for anyone in business that actually makes things (growing smaller every day in America). There is no way to give your people a raise, no way to replace worn out equipment, or make purchases to grow or expand.

The two reasons you hear so little about inflation (though it is likely raging along at at least 6%) is that 1: The Government over the years has slowly changes the way they calculate inflation and report it to make the composite number almost meaningless, and 2: Inflation of the prices to the producers of goods is not being passed to the consumer.

So why does it matter?

Look for inflation at the consumer level to finally show it’s ugly face, or we will get to see a slow but steady erosion of US businesses that produce things we like to buy.

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Category: Commentary, Economics, Recession Watch

About the Author ()

Bruce Henderson is a former Marine who focuses custom data mining and visualization technologies on the economy and other disasters.

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