Consumers are tired of inflation. But some retailers fear falling prices
Consumers are tired of inflation. But some retailers fear falling prices
www.cnbc.com
Consumers are tired of inflation. But some retailers fear falling prices
Key Points
- As shoppers await price cuts, retailers like Home Depot say their prices have stabilized and some national consumer brands have paused price increases or announced more modest ones.
- Yet some industry watchers predict deflation for food at home later this year.
- Falling prices could bring new challenges for retailers, such as pressure to drive more volume or look for ways to cover fixed costs, such as higher employee wages.
Retailers fear things that would help consumers consume? Sounds like retailers don't know how to succeed without gouging.
The last time USA had extended deflation, the Great Depression happened. When people stop consuming, retailers fire their workers. Then fewer people can consume, so more people get fired. This goes on enough, then its not just stores who fire workers, but it trickles to factories, R&D, office workers, etc. etc. The longer deflation happens, the further it spreads and the more people lose their jobs.
Ever since the Great Depression happened, US Policy has been strongly anti-deflation. Our policy is to "err" on the side of slight inflation.
So what happens when retail workers don't get paid enough to consume even with jobs?
We're only at risk for people stopping food consumption if prices don't fuckin fix themselves, and I'm serious about that. People are gonna eat if they can eat.
We are not at risk for any sort of sustained deflation. Inflation is currently over 3% (higher than the Fed's target of 2%) and interest rates are very high. We have a lot of wiggle room if inflation starts dropping.
The cause of the great depression was overextended credit and stock market gambling. Deflation was present because people didn't have as much money (or credit) to spend, but it was merely a symptom of an economic downturn, not the cause.
We currently have a high base interest rate set by the fed. The country can fight deflation easily by cutting the rate from its 5 base points, which will increase lending and spending
This shouldn't be an issue now.
Line go up….this quarter, or else.
You'd think it would help consumers consume, but if deflation is too steep and too extended people start rationing as much as they can because they don't want to look like an idiot for buying that gallon of milk this week instead of next when it'll cost half as much.
Yes, I'll skip eating this week to save $50
OR, hear me out, I'll just spend the money because I'm hungry
Traditional economic theory- yes. Hence why deflation can cause such issues.
However, there is also a significant part of consumption that you will make regardless of price, because the alternative is death. (C0 and C1 for anyone who took first year).
The problem is prices grew soo much our entire spending is now limited to essentials (c0), and even if I knew it would be cheaper next week im only getting it because I need it now.
Why would the price of milk drop by half? I've seen the price of eggs drop by half, but only after they rapidly jacked it up 6x and the price drop didn't only take a week to happen. Regardless, if people are not going to be kicking themselves because they could've saved $2 if they bought a week later. It's the collective raising of prices of almost everything altogether that is destructive.
This is an over-simplification, but consider this:
A farm has to sell their produce/livestock below their cost-price, because demand has dropped and the resulting over-supply has caused a race to the bottom as producers try to recoup as must value as possible.
This leads to less funds available to produce the next round of crops (further negatively impacted by economies of scale), cover operating expenses and pay staff wages.
People lose their jobs and livelihoods, causing a negative feedback loop resulting in less demand overall.. repeating the cycle. The Great Depression of a century ago was an example of a similar scenario.
How's this for an over simplification: we should find the guy who got the big bag of money that started the whole thing open that bag.