Murray Mullen, who runs Mullen Group, a large shipping logistics companies, says: “Inflation…is out of control at the moment.”
One aspect of that are rising food prices, which Emily Peck notes are changing our grocery shopping routine — “already kind of weird after the pandemic pushed more Americans to eat at home.”
High inflation is behaving like a boomerang, spinning and wreaking havoc in all kinds of markets — from cars to housing, from stocks to groceries — and changing the way we live.
By Dave Allen for Discount Gold & silver
Murray Mullen, who runs Mullen Group, a large shipping logistics companies, says: “Inflation…is out of control at the moment.”
One aspect of that are rising food prices, which Emily Peck notes are changing our grocery shopping routine — “already kind of weird after the pandemic pushed more Americans to eat at home.”
High inflation is behaving like a boomerang, spinning and wreaking havoc in all kinds of markets — from cars to housing, from stocks to groceries — and changing the way we live.
Shoppers Conducting Their Own Kind of Swaps
Forget credit default swaps. Peck notes that shoppers are starting to swap different types of meat, as those prices climb — let’s call it derivative shopping.
Others, she says, are eating less meat overall, and swapping more veggies and grains (the latter probably a good idea, given all the consumer agita).
The cost of beef is up 20% over last year and chicken is up 13%, according to the Labor Department’s March CPI report.
Some households are even butchering whole chickens instead of picking up the usual pack of thighs — to save money.
More broadly, people are just buying smaller packs of meat, according to Joan Driggs, a vice president the consumer data firm IRI.
"If you watch the meat case,” she said, “[shoppers] will rifle through some of those packs until they find the lowest price."
Peck adds that “shrinkflation” is becoming more evident. That’s where companies are keeping prices the same, but they’re selling you less of what’s inside — be it cereal, ice cream or, my favorite, Hershey’s bars — to compensate.
So far, overall spending on food hasn’t been increasing at the same rate as inflation (although it sure feels like it at the checkout line).
Household spending on groceries is up 4% on average in April, says the April market report from FMI, the food industry association (vs. annualized CPI of 8% in March).
It's a sign that shoppers are looking for ways to keep costs under control and their household budgets running in the black.
Heather Garlich, senior vice president of communications at FMI, said, "Consumers are really adept and they're nimble when it comes to their spending habits."
But shoppers with incomes of less than $40,000 aren't buying as much fresh meat and seafood, according to the FMI report.
They're turning to frozen meat or canned stuff instead (Spam sales are up 11% this year and in 2021 hit their 7th straight year of record sales) — and buying more discounted store brands.
It's these lower-income shoppers who are most at-risk as food prices continue to rise.
Stay at Home Vacations Are Back
Inflation is also taking a toll on summer vacations, with more families deciding to just stay at or near home this year.
Nearly 7 in 10 people recently surveyed by Bankrate said soaring costs were causing them to downsize to fewer, shorter and cheaper trips this summer.
Pete Gannon notes that for Americans sitting out summer trips altogether, cost is only one reason. While almost half of them (48%) say they can't afford it, 20% say Covid concerns are largely driving their decision.
Thus, more than a quarter of those staying put this summer say they just aren't interested in a weeklong vacation.
Wow, inflation, that’s really mean of you!
Stocks Fall for Third Straight Week
Last but certainly not least, last week was brutal for stocks.
It was the third straight weekly loss for the Nasdaq and the S&P 500, and the losses seemed to build until the closing bell rang Friday.
In fact, the S&P's 2.8% drop last Friday was its worst day in nearly seven weeks (perhaps that should read “in only seven weeks”).
And with the Fed seemingly intent on hiking interest rates by half a percentage point next month — and by a total of over 2 percentage points by year end — stocks (and their owners) could be in for a rough 2022.
As Gannon observes, “Fed rate hikes can have roughly the same effect on stocks as Kryptonite on Superman.”
Late last week, Fed chair Jerome Powell sounded like he was dead set on crushing inflation by raising rates rapidly.
His comments and those by his policymaking colleagues, have pushed investors closer to the edge.
Gannon says it's time to keep our eyes peeled on market-based estimates of inflation called “breakevens.”
A breakeven is the difference between the yield of a nominal bond and an inflation-linked bond of the same maturity.
Since investors' money is on the line, they presumably have an interest in pricing inflation correctly.
We won't get new CPI data until May 11th, which makes breakevens the place to see if investors think inflation is going the way the Fed wants — downward — or not.
If breakevens keep rising, as they have been, the Fed will have to either raise rates higher or threaten to.
Either way, it could get even uglier for stocks. Already in 2022, the DJIA is down 6.6%, the S&P 500 is down 11.2% and the NASDAQ is down 17.9%.
e-Commerce to Blame, Too
Blame the rise of e-commerce for at least some of the inflation we're seeing.
Felix Salmon writes that we don’t live in a "Price is Right" world anymore “where any given item has a knowable true price that is broadly unchanged from day to day or from store to store.”
Instead, prices constantly ebb and flow and are unpredictable, which makes them much easier to raise. Call it inflation’s deceptive sleight of hand.
Prices, like phone numbers, are things we don't always remember — we simply look them up on the internet if we need to know them.
Salmons caution, though, as we pay less attention, “we become less price-sensitive, giving companies more scope to raise prices.”
Historically, it’s been difficult for merchants to change prices. Economists talk of "menu costs" — if a restaurant wants to raise its prices, it needs to reprint all of its menus, often at significant expense.
If the restaurant menu is a QR code, on the other hand, raising prices is just a matter of changing numbers on a single web page.
That's why Salmon says e-commerce outlets generally change their prices more often than physical stores do.
But physical stores are now hopping on board. E-ink displays at supermarkets can change as frequently as a price on Amazon.
A single item from a single restaurant, however, can have a range of different prices depending on where and how it was ordered.
So, what’s something supposed to cost anymore? Prices sometimes seem as though they're the product of a computerized number generator:
Here a loaf of bread is $29, and there the five-volume Jasper Johns catalogue raisonné is $199. And f you paid face value for your concert ticket (I for one don't remember the last time I did that!), you're in a distinct minority.
Most prices are dynamic these days. Until recently, that worked in consumers' favor, as merchants competed to offer the lowest price.
Now, Salmon says it's working against us, “as they attempt to maintain or even increase their margins in the face of higher costs.”
Americans are dazed from their most recent $75-$100 trip to the neighborhood gas station, hardly blinking at the latest implausible price for steak, chicken or milk.
We might not be able to afford it, but we pay it anyway.
After a nocturnal slippery slope that saw gold fall overnight to below $1,896, it’s recovered in mid-day trading to $1,906.
Many seasoned precious metal traders weren’t surprised, given the selling of rallies (especially in gold ETFs) that reach a certain level.
As Bubba Horwitz says, let “patience, discipline and money management” continue to show you the way, especially if you own physical gold.