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Issue #1355: Is there a potential inflationary lagging effect on the horizon?

Issue #1355: Is there a potential inflationary lagging effect on the horizon?

Jun 26, 2023
Marty's Ƀent

Issue #1355: Is there a potential inflationary lagging effect on the horizon?

via a struggling small business

Over the weekend a friend sent me the picture above, which he took while going in for a haircut at a salon in upstate New York. This is a pretty startling note to customers. It hits on all of the problems that many businesses have run into since the COVID lock downs. Their wholesale prices increasing by more than 25% in two years, more than double the growth rate of the Consumer Price Index over the same period. Labor costs rising by more than 20%. Inability to refill inventory. Knock on effects on their bottom line due to the supply chain problems they are experiencing. And the entrepreneurs' struggle to keep things afloat.

All of these things, especially when combined, are signs that the official economic data, especially the CPI, may not be as indicative of the economic reality that Americans are experiencing on the ground as the government would lead you to believe. What's most worrisome about the letter is the fact that it seems like the business owners explored every move they could make before finally capitulating and passing along their costs to their customers. If you read the highlighted section you'll notice that the salon owners highlight June 2022's 9.1% CPI print and reference the fact that it was the highest level the index hit since 1981, yet they aren't increasing their prices until July 1st of this year. This signals to me that these particular business owners did everything they possibly could to keep prices stable for their customers until their hands were absolutely forced by the market.

With this in mind, one must ask themselves, "How many other entrepreneurs acted similarly and attempted to keep their prices stable to keep their customers happy but have been or will soon be forced to pass their costs on?" Obviously there have been many business owners who acted rather quickly to adjust prices to reflect the month-to-month inflation they were experiencing. But you have to imagine that there is a sizable demographic of business owners who acted similarly to the owners of this SmartStyle franchise and have delayed their price increases as long as possible. And if this is the case, is the American economy about to experience a lagging inflationary effect brought about by tapped out entrepreneurs who do not have the ability to hold prices stable any longer?

Your Uncle Marty would not be the least bit surprised if the dam of desperate entrepreneurs attempting to keep their customers happy with stable pricing is about to break due to the unrelenting pressure of the inflationary forces that were unleashed during the COVID lock downs and subsequent monetary base expansion. Something to pay attention to as Summer rolls on.

Final thought...

My kids are crazy, but damn are they cute.

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