Inflation

Discussion in 'Markets & Economies' started by mmm....shiney!, Jan 16, 2021.

  1. heartastack

    heartastack Well-Known Member Silver Stacker

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    As I've mentioned. We're passing on 20%+ price increases from Asian suppliers of food ingredients currently to our manufacturing partners, who supply retailers and food service who then serve you. You won't even see this for months and months as contracts expire and prices can be reviewed down the line ultimately hitting the retailer outlets.
    The price is going up due to demand. Why is demand going up? Because there is more money out there to chase the material... Volumes aren't going down they're going crazy. Business is making more money than ever and all forecasts are up. I'm pumping high margins that aren't even being challenged because people just want product at any cost. That money will be spent on expansion and the capital will compete with the rest of the market for materials. Competition will force materials to cost more thus inflation. When freight and energy costs come down that may buffer a bit.

    I appreciate your analysis and I cannot match it. All I know what I see because I'm spending the company's money, but it doesn't sound like anything to do with above.

    When would you expect to see inflation come down and in which areas, and what areas matter most?
     
  2. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    I have read that it is fears that future supplies may dry up so companies are adding to inventories even in the face of falling sales.

    According to the last ABS stats, manufacturing company gross operating profits have steadily risen over the past two years, sales and inventories have remained stable and you're suggesting that that trend may have reversed in regards to inventories.

    Manufacturing, Current prices.jpeg Manufacturing, Chain volume measures.jpeg

    When we move down "the food chain", company gross operating profits in the accommodation and food services sector has slumped (mainly as a result of the termination of COVID19 business assistance stimulus packages esp. wage support and BAS write offs I would suggest), sales have fallen and inventories have remained stable.

    Accommodation and food services, Current prices.jpeg Accommodation and food services, Chain volume measures.jpeg

    So the activity at the manufacturing level is robust, but it weakens the more you move closer to the consumer who in the main has not benefitted at all from QE. Why have manufacturing company profits risen in the face of a weakening economy when profits in the food wholesale and retail sectors been falling? Manufacturers are removed from consumers to a large degree so any fall in demand at the retail level may take some time to reach them. Or, they may be the recipients of the largest share of the outcome of QE, lending to large businesses has risen while lending to SMEs has fallen after all.

    When the pandemic ends.

    Maybe health, household furnishings and equipment, maybe education and transport services?

    Health obviously, transport is important but some of that had to do with the oil prices rising again I'd say.
     
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  3. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    Dec 2021 CPI figures from the ABS will be released tomorrow. Pundits are expecting a slight fall, but around the 3% mark for the year Dec20 - Dec21.
     
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  4. heartastack

    heartastack Well-Known Member Silver Stacker

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    Look forward to tracking this over the next year or two!!
     
  5. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    Scott Minerd CIO of Guggenheim Investments (whatever that is):

    https://www.msn.com/en-us/money/mar...t-minerd-says-it-should-do-instead/ar-AAT5Zyu

    He says that any move by the The Fed to raise the cash rate will see the RRP automatically raised as well. Free money for banks which will then need to find another investment ie asset purchases and the monster will continue to be fed.

    Maybe that's why it's called The Fed?
     
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  6. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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  7. vos

    vos Member

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    ABS still not even close to (anecdotal) prices I'm having to pay. Way too much money chasing way too few goods. I don't usually buy into inflation fears but seems pretty obvious we in Australia have at least another year of fighting over very tight supply.

    If ABS numbers are reasonably accurate then investment housing market is full of investors lacking arithmetic basics.
     
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  8. leo25

    leo25 Well-Known Member Silver Stacker

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    I’m really starting to notice all my groceries going up in price now and people seem to have the cash to pay higher prices. I think these prices are going to stick, there is no going back. (Unless they completely crash the system)

    there is way too much money chasing few quality goods. You can’t scales up production of quality goods the same way you can scale cheap crap. The quality market was never able to accommodate an additional 1 billion Chinese.
     
    Last edited: Jan 25, 2022
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  9. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    There's also that sneaky unrecorded inflation device...where the manufacturer keeps the price the same, but makes the contents a smidgen less...ie take one Tim Tam out of the pack or make them 5% smaller.....at no cost saving to you the consumer. I suspect the ABS does not do a price v volume calc change over time as part of their quarterly calculations.

    It all started when those sneaky brewers started putting new brands of beer in a 345ml bottle v the standard 375ml stubby. MF'ers !
     
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  10. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    Rather than way to much money chasing far too few goods, it's more likely that consumers are having to prioritise spending on groceries and fresh produce at the expense of other consumption. The other thing too of course is that consumers are spending the savings that they built up during the height of the pandemic.

    [​IMG]

    Either way, the old theory of marginal utility applies equally whether it's an economy expanding productivity or an economy shrinking as a result of a recession.
     
  11. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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  12. leo25

    leo25 Well-Known Member Silver Stacker

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    The issue with these crude tracking is that is assumes all apples, tomato’s, meat etc. are the same. I can buy an apple that taste like flower for a low price and has a high availability, where as a nice tasting apple might cost 3x as much and is in limited supply. Same goes with fish, red meat, chicken and everything else. The price of quality items are going up a lot, but those charts don’t reflect it because they just track low quality items.

    Soon they might say the cost of meat has gone down, because you can now buy fake meat that the bean counters consider the same.

    Here are a few examples comparing cheap Coles product vs what i buy.
    Apples $3.50Kg / $7Kg
    Eggs 12pack $3.70 / $10
    Chicken breast $12Kg / $30Kg
     
    Last edited: Jan 25, 2022
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  13. 66rounds

    66rounds Well-Known Member Silver Stacker

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    At the same market today I paid 250% more than usual for budget roses, unrelated to Valentine's Day as the price gouging for that doesn't begin until a week prior and usually affects premium roses.

    Was stated to be due to import and freight costs but no way to know whether that's true
     
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  14. jultorsk

    jultorsk Well-Known Member Silver Stacker

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    "Eating and heating."

    Appears the hike of fertilisers prices continues.

     
  15. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    Look into Leigh Creek Energy ASX:LCK.
     
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  16. leo25

    leo25 Well-Known Member Silver Stacker

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    We are in a very interesting situation. If Central banks persist with an easy monetary policy price inflation will continue, but if they change to a tightening monetary policy price inflation (in real items) will go up faster. :confused:
     
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  17. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    They track the more common items available at supermarkets. The Red Gala apples which are average at best, they're crispy but a bit too firm and flavourless but seem to be the most common now, the toms are the gourmet variety ie the loose ones - they're nicer than the vine ripened greenhouse ones but they're still a standard commercial variety, cauliflowers are cauliflowers from my experience, same with iceberg lettuce, the beans are fine IMO I guess it's what you're willing to pay.

    We do 99.99% of our shopping at the majors. We only buy beef and lamb when it's on special (we've got 2 chest freezers) and then we're very particular about which cuts we buy eg mostly sirloin or T-bone and if we want a couple of steak burgers or some stir fry then we'll grab some rib if it's on special. We don't buy fruit or veg anywhere else as it's overpriced and/or poorer quality, unless we get it direct from the farm and then you have to watch out that they're not flogging off their seconds to you as all the premium stuff goes south to market. Just like the local fish.

    At Beef 2020, the ritzy pop-up restaurant had 5 cuts of beef on the menu. 4 were from abattoirs out of town (Kilcoy, Gympie, Clermont and somewhere else), the 5th was a compromise because they thought they'd better showcase a local product seeing as Rocky is supposed to be the Beef Capital. The 4 cuts from out of town were better. I had a piece of flank coz I'd never tried it - knife cut through it like butter. The beast from which it came probably never had to walk for a feed or water lol.
     
  18. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    Explain to me how accommodative monetary policy causes consumer price inflation.
     
  19. 66rounds

    66rounds Well-Known Member Silver Stacker

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    Exactly, their toolbox is empty, and no matter what they do, inflation is going to continue
     
  20. leo25

    leo25 Well-Known Member Silver Stacker

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    There are many examples, but ill just do the main one. Note; I put government and CB into one category, so if i say CB i also mean government and if i say government i also mean CB.

    -I buy an investment property on the common 10x leverage (which only happens because CB's remove risk from banks by willing to buy their MBS in tough times) So lowers lending standards.
    -I buy that property because interest rates have been pushed lower then the appreciation rate of the property. So if i can borrow at 3%, yet growth rate is 8% then that's a nice 5% spread. Even nicer when it's 10x leverage.
    -So now I'm earning a 50% return on my initial deposit. So if that's $100k, then i get a free $50k year over year for doing nothing (minus fees).
    -I'm now going to spend more money, maybe buy better quality items or just buy more.
    -Rinse and repeat.

    All this is possible due to CB's/government intervening in the market and trying to reduce or even eliminate risk. The less risk a person thinks they have the bigger they are willing to gamble.

    Have a look at markets atm. Just the idea of the CB's reducing its intervention in removing or distributing risk has caused markets to revalue what they own and therefore sell off.
     
    Last edited: Jan 25, 2022

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