Inflation is on the rise at a far faster rate than the Federal Reserve projected just a few months ago. Now they stick to their guns assuring us that this rapid rise in prices is transitory. What is missing is a definition of the word; transitory.
Just like the biblical story for Nebuchadnezzar who saw the writing on the wall, the finger of fate has been writing “inflation” on the wall for some time. Perhaps the Jerome Powell, the chairman of the Federal Reserve needs a prophet like Daniel to interpret the writing.
There are certain pieces of the inflation picture which will moderate going forward, but there are significant pieces that will not. I remember well the inflation of the 70’s along with the unemployment of stagflation and the ultimate recession. Many of our current business and government leaders were too young to remember or understand the resulting tumult.
My job as a retailer, was to resist price changes and fight for our customers. This is feasible when dealing with a handful of vendors but becomes impossible when all vendors are demanding price increases on a constantly increasing basis. At that point you must set up an administrative production line to implement higher prices just to protect your own business.
The higher costs of goods create demand for higher wages which will not moderate. Today’s economy has multiple cost escalators. New tariffs have not slowed down the demand for Chinese products but has put a cost burden on retailers that must be passed on to customers. The political forces lined up against carbon fuels can only result in higher costs to businesses that must be passed on. The proposed $15 minimum wage more than doubles this base wage and has an acceleration impact on many other wage levels. These costs must be passed on. We see cars and houses skyrocketing in price. Not everything that goes is likely to come back down. Taxes to offset the incredible increases in government spending will impact businesses and ultimately individual families
Inflation is accelerated by expectations. As businesses and individuals begin to anticipate inflation, it becomes a self-fulfilling prophecy. The result can be a repeat of the U.S. economy of the 70’s or worse, it can spiral into the economic death curve experienced by Argentina over the past 20 years. While working with my Home Center client in Argentina, we saw people bring bags of Argentine pesos into our store to buy bricks – not because they were building something. Rather, they simply would rather have their money in a truckload of tangible bricks than in the government’s currency. I am not predicting an Argentine inflation crisis in the U.S. However, I do suggest that our government is redefining the word, transitory.
Government actions matter, and current government thinking sees businesses as both sources of new income and enterprises that need more government control. All this increases costs which ultimately will be pushed on to the consumer.
The old saying is – “Hope for the best, but plan for the worse”. That is sage advise as you consider the impact of inflation on your business and your lifestyle.