24601NoMore
Thinks s/he gets paid by the post
- Joined
- Dec 8, 2015
- Messages
- 1,166
NoMore - it do think it’s very likely inflation is up another 7-10% in the next 12 months. I think you would be surprised at how much companies held back on raising prices over the last 10 months originally due to expectations inflation was transient and then that it would be over in early 2022. PPI is actually getting worse and commodities are way worse. We’ve raised prices 10% in the last 14 months and if prices for inputs don’t come down or labor doesn’t fall off quickly, we’ll have to raise prices 15+% in the US to maintain margin - and that’s assuming it doesn’t get worse.
Well reasoned as PPI is indeed rising also, but guess we'll have to see where things are a year from now. Consumers are ALREADY at the breaking point. Many people are having to decide what to give up to afford basic necessities. For those and reasons, I'd be stunned if we're at 7-10% inflation on top of the 8.5% (probably closer to 20%) we've already experienced. People simply can't afford to live at those prices.
A term I've heard used often recently is "Demand Destruction". And as we all know, prices can only be raised to a point where demand is indeed destroyed, and less widgets are sold at those levels. Companies will then "have" to lower price to a point where they can sell the units needed to meet revenue targets. Said another way, companies can't just say "hey, we have to pass on PPI increases to Consumers" because there's a point the Consumer just stops buying that product.
Of course, there are some products and services (eg: healthcare) with a more inelastic demand curve, but short of absolute essentials (and I'm not talking the latest pair of Nike sneakers), there's Demand Destruction that occurs and prices eventually revert to what the market will bear.
As an example - we bought a new (used) house last fall. It has nice Andersen windows, but some need repair. Had a company out. They gave us their bid. THREE HUNDRED DOLLARS **PER HOUR** labor. Um, no. I'm not paying (nor can I afford to pay) someone $300 per HOUR to fix windows. I'm not hiring a lawyer or a doctor. I need someone to fix some windows. And at $300 an hour (they quoted 6 hours work, so $1,800 labor), I'm not a buyer and will just live with what we have..eventually, I'm sure they'll run out of idiots..er...willing customers..who are OK with $300 an hour for window repair (good grief!!) I darn near threw the guy (physically) out of my house..