Deflation is a horrifying idea. There is less demand for goods and services and, in order to keep up with these changes, producers are forced to cut prices. For the consumer, this does not sound bad. But we all know from the past 6 months that such downward pressures on prices have adverse effects on confidence, wages, and employment in general. The withholding of purchases in anticipation of further prices declines can result in a downward spiral. Which brings me to my favorite vending machine. The vending machine is, no doubt, one of the simple pleasures during a workday that provides nourishment for a (relatively) small amount of expenditure. In fact, on days where energy levels are lagging (this is frequent), one needs to supplement their diet with a higher caloric intake or risk being caught in the act of drifting into a daydream so sweet that only the high ring of an Outlook calendar can provide the needed jolt back to reality. So imagine you walk to your most cherished of work locations to suddenly find a sharp increase (7%) in prices across the rows of chocolately and nutty goodness. What would your most likely reaction be? I would hope shock and dismay and also expect you, if a rational consumer, to realize that such an increase in prices does not (likely) reflect your financial condition at the current time in that you have not received a 7% increase in your wages overnight. But, in reality, consumers (myself included) do not act this way. Even if you were to notice such a onerous change in the price of your sweet tooth-craving treat, a 7% change in the price of something priced less than $1 (USD) would not likely cause you to change habits as it will not make a bit of a difference in your bottom line. In fact, if you were to do this day in and day out, your overall standard of living will remain the same and you could still afford a couple of brews when your best buddies from college come into town to visit. That is the utter nastiness that inflation brings. While we all are in an economic maelstrom and deflation is the name of the game right now, food prices have steadily increased. If you look at national data from the Bureau of Labor Statistics, you will see that if you look at the CPI Index for only food prices as I have using the years 1982-1984 as your base period= 100, the most current index value stands just under 219. The year previously (Mar ’08) the index gave a reading of 209. Going back to March 2007, the index stood at 200. And why not revisit the wonderful year of 2006 when the times were good, Hummers and condos were selling, and the champagne flowing. In March of that year, the index stood at 194. So, from the Age of Bling to the Age of Bailout, there was an increase in overall food prices in this country of approximately 13%. In the same period, the unemployment rate has doubled. Obviously the increases in price did not come as drastically as exhibited by the much heralded vending machine. But the relatively small increases that accumulate over time could have real effects on a person’s bottom line. And, as spending on discretionary items has rapidly declined, the percentage of personal income spent on food must rise. Add to that, a marked increase in these prices, it becomes even a larger piece of the pie. Psychologically, it doesn’t really seem as if anything has changed. When one sees the prices of washing machines dropping on a daily basis, one thinks they could get a great deal in the marketplace. But what gives if your favorite light turkey breast costs another quarter per half of a pound. Unless you are really a cranky individual and the frugality that has developed inside you over the years can make you easily pass for Scrooge on crack, these extra coins here and there are chunk change. Which brings me to a temporary conclusion (oxymoron??) When prices for goods and items excluding food once again begin to rise, and the exporting countries of the world realize that they have far more bargaining power with the world’s leading consumer than they ever have, what then will be the price of that ever so delectable mix of sugar and fat to be found in our favorite vending machine? And let us not forget, the upward pressure on prices coming from demand in developing and emerging markets with burgeoning populations and larger consumer bases. Further, when will we (the hapless consumers) finally rebel against this ugly brand of pricing power and once and for all reverse the trend?
Please, comments are desired. Whether it is about your favorite brand of potato chip or the oligopolistic tendencies of food producers, it doesn’t matter. What matters is a forum for all of the things you may think but do not say (within reason). This thread will continue…..
PS: I apologize to everyone waiting for the D.O.W. as it is being delayed once again this week- I just was thinking about this had to go with it. Poll to come Thursday afternoon….