Deflation could put pressure on retailers and brands to drive more volume, debut innovative products and find other ways to cover costs such as higher wages.
Key Points
As shoppers await price cuts, retailers like Home Depot say their prices have stabilized and some national consumer brands have paused price increases or announced more modest ones.
Yet some industry watchers predict deflation for food at home later this year.
Falling prices could bring new challenges for retailers, such as pressure to drive more volume or look for ways to cover fixed costs, such as higher employee wages.
The last time USA had extended deflation, the Great Depression happened. When people stop consuming, retailers fire their workers. Then fewer people can consume, so more people get fired. This goes on enough, then its not just stores who fire workers, but it trickles to factories, R&D, office workers, etc. etc. The longer deflation happens, the further it spreads and the more people lose their jobs.
Ever since the Great Depression happened, US Policy has been strongly anti-deflation. Our policy is to "err" on the side of slight inflation.
We're only at risk for people stopping food consumption if prices don't fuckin fix themselves, and I'm serious about that. People are gonna eat if they can eat.
We are not at risk for any sort of sustained deflation. Inflation is currently over 3% (higher than the Fed's target of 2%) and interest rates are very high. We have a lot of wiggle room if inflation starts dropping.
The cause of the great depression was overextended credit and stock market gambling. Deflation was present because people didn't have as much money (or credit) to spend, but it was merely a symptom of an economic downturn, not the cause.
We currently have a high base interest rate set by the fed. The country can fight deflation easily by cutting the rate from its 5 base points, which will increase lending and spending
You'd think it would help consumers consume, but if deflation is too steep and too extended people start rationing as much as they can because they don't want to look like an idiot for buying that gallon of milk this week instead of next when it'll cost half as much.
Traditional economic theory- yes. Hence why deflation can cause such issues.
However, there is also a significant part of consumption that you will make regardless of price, because the alternative is death. (C0 and C1 for anyone who took first year).
The problem is prices grew soo much our entire spending is now limited to essentials (c0), and even if I knew it would be cheaper next week im only getting it because I need it now.
Why would the price of milk drop by half? I've seen the price of eggs drop by half, but only after they rapidly jacked it up 6x and the price drop didn't only take a week to happen. Regardless, if people are not going to be kicking themselves because they could've saved $2 if they bought a week later. It's the collective raising of prices of almost everything altogether that is destructive.
This is an over-simplification, but consider this:
A farm has to sell their produce/livestock below their cost-price, because demand has dropped and the resulting over-supply has caused a race to the bottom as producers try to recoup as must value as possible.
This leads to less funds available to produce the next round of crops (further negatively impacted by economies of scale), cover operating expenses and pay staff wages.
People lose their jobs and livelihoods, causing a negative feedback loop resulting in less demand overall.. repeating the cycle. The Great Depression of a century ago was an example of a similar scenario.
I am a private music teacher, and while most private teachers will go through a school to do lessons, I've just gone freelance and do it all myself. I get to set prices and recruit or not and I have so much freedom, but one thing I found was that in setting prices, people will pay what you say. If they can't I'll chat a bit to see what the situation is and see where I can make discounts of course, but wealthy families are willing to do $100 an hour easy. I know I could bump it to $150 for some.
Basically all I'm saying is inflation is BS for companies making up higher prices.
That's the weirdest comparison you could make.
Private teaching isn't a necessity, even more so music. People aren't picking between store brand music lessons and locally sourced organic free range lessons of higher quality because budget constraints.
Add to it. People don't haggle. If you state a price and they're fine with it? Then you priced it within their expectations.
This article makes me want to vomit. All these companies and CEOs talking about inflation like it's this intangible phantom that nobody can get a grasp on.
“If one looks at inflation over time, we very rarely get into periods of sustained deflation. That’s just not a consumer effect,” Coke CEO James Quincey said Feb. 13."
It's the companies and CEOs price gouging. Call a spade a spade for Christ's sake.
Even massive companies like coke don't control the entire economy and the respective levers we use to control inflation. A bottle of coke going up doesn't cause inflation especially in our global economy.
About the only thing outside of government that's big enough is OPEC, and we know they don't have to do shit about anyone else.
The absolute price of coca-cola in the the United States has gone from $0.05 in 1970 to $2.69 in 2023. That's an absolute increase of $2.64, or 5280% in a period of 53 years.
...
When we adjust for inflation, we see that the price of coca-cola also peaked in 2023, when it cost $2.83 (in today's money), and was at its lowest in 1970 when it sold for $0.42.
The biggest drop in adjusted price happened in 2015, when the inflation-adjusted price dropped by $-2.37 (-100%). Even when adjusting for inflation, the biggest price increase of coca-cola was still in 2022. However, the $0.64 jump actually felt like $0.64 to the consumer due, to the effect of inflation.
The average price of coca-cola during this period of time, adjusting for inflation, has been $1.89, and the most current price of $2.69 is 42.33% above that average.
Yeah, don't give me that bullshit. That's the same excuse Galen Weston used only a few years after they were found guilty of price fixing bread. Inflation is just an excuse.
Question for the economists in this thread. Everyone seems to be saying that a lack of at least some inflation is bad but also that wages going up to meet it is bad. Isn't this a system automatically doomed to fail? Eventually in such a setup no one can afford anything and the economy collapses.
The issue is our economy is entirely built around low interest rates and low inflation. It's been that way for a generation. This benefit asset-holders like home owners and the wealthy. Hence why they are doing everything possible to avoid wage-growth. They don't care about inflation, what they are terrified of is wage growth and higher interest rates.
Not an economist per se, but what my econ prof in college put on the test is, more or less, that workers' penury will eventually force them to take action to raise wages. This includes everything from strike actions to workers in general simply refusing to take the lowest-paid jobs anymore. The fact that employers will delay this process as long as possible and keep the raises as small as possible and workers will have to fight like hell to get even pitiful raises is also part of the theory. It's a story of gIvE aNd tAKe that ignores the government took massive action last year to prevent the labor market from responding to the new market conditions and routinely acts to prevent wages from rising "too fast." The price of everything can inflate to hell, but if the price of labor goes up in direct response just like every other commodity, whoa now, stop the presses, that's an economic problem.
Some inflation is necessary to prevent wealth hoarding. It's one reason we moved away from the gold standard.
Minimum wage needs to be tied to it though because we're still seeing a huge amount of wealth disparity which is exactly what inflation is meant to solve.
2% inflation and 2.5%-3% wage gains where the difference is made up by productivity gains would be the ideal.
The thing people are scared of is a wage-price spiral where inflation is 10% so wages have to rise 10% which increases employer costs so they raise prices 10% so wages have to rise 10% etc. High inflation that becomes self-perpetuating.
Wages rising faster than inflation is good, but the risk of a wage-price spiral is what people are afraid of with rising wages.
The problem is credit. People and government buying things not with money but credit. Basically IOUs from a parent to a child. In this metaphor it's like our shitty fucking parents paying home security bills amd groceries with credit cards and using cash for the casinos.
I honestly don't get it. Why do prices have to go up even if wages don't? It seems like some people say that some kind of inflation is absolutely necessary no matter what.
Not an economist at all. I can't say anything about refusing to raise wages, I don't know for sure that wages increasing to match inflation is bad for anyone except the capitalist class.
Inflation being more desirable than deflation is simple enough though. If prices are constantly, slowly, going up, it means that your purchasing power with an amount of money is always highest right now as opposed to in the future. This encourages spending - why wait to buy this thing in going to buy anyway, if it'll be 3% more expensive next year? The one thing we absolutely don't want is people just hoarding money, sitting on it because prices will go DOWN tomorrow. This leads to a stagnant economy, where there's no money moving, and that's bad for everyone.
And yet we have a whole class of people who hoard the most money.
I've heard this argument in economics videos, but if you think critically, you can't wait to buy necessities no matter what way the dollar is moving. And even in an inflationary environment things that you can wait for will go down in price over time. They'll age, newer versions will come out, a used market starts up for it, etc. So waiting for prices to come down doesn't seem to be related to inflation at all.
And to give a more concrete example, think of the speed of inflation (assuming 2%/year). Well if we had a year of deflation at 2%, why would I wait an entire year for my $1000 product to be $980. The savings is a pittance.
Not hitting record profits year after year. Reducing their CEO from a five yacht household to a four yacht household. Finding ways to hardline lobby to reduce taxes to zero.
more like, this year the CEO can't upgrade to a 7-yacht household like planned and will have to be happy with merely upgrading to six yachts, a plane, and two Mazeratis
They tighten their belts, we tighten our belts, everybody loses. All because they got to have all the money and never leave anything on the table for the working class.
100% agree. I have personally stopped eating fast food months ago. The quality is the worst it has ever been and it is outrageously priced. Same goes for soda, chips, and other junk food. Junk food was supposed to be cheap. When you stop making it cheap....you don't have a consumer base.
MC donalds "standard" menu; +-/ 15 Euros (used to be around 8-10 euros)
Dominos Pizza medium "special"; 15+ Euros (used to be around 10 euros for the same pizza)
It's already close to a price hike of 50+ percent.
Went out to dinner with a few friends to a Korean BBQ place; 40 euros for all you can eat per person. It was nice but the amount of food that one should eat to get to the 40 euro treshhold is insane. I think I ate for a maximum of 15 euros of food.
Other places also aggressively jacked up their prices for the exact same menu and quality (or lack of). I just cannot be arsed anymore to eat out.
The new fastfood prices are getting closer to the restaurant prices pre inflation. I don't see any incentive to actually pay those prices for the lack of quality of the food.
I also see that the same fastfood chains 'quietly' implemented shrinkflation in regards of toppings or portion sizes so one gets screwed over double.
I liked to get some fastfood once or twice every 2 weeks, but I just cannot be bothered anymore.
the kicker is that for that 15 euros worth of fastfood I can get close to a weeks of selfcooked dinner.
I already see some grocery stores actually lowering the prices of certain items and aggressively put items on huge discounts.
When's the last time the US saw significant deflation? The 30's? Can't say I blame them for their fear. But they'll see no sympathy from me! We've seen two whole generations born, raised, and passing away in the age of "Number always go up!" business. At least the greatest generation grew up hearing stories of difficult times when it was the unions and collectives that brought them through the darkness. I'm sure current business leadership has no clue how to face this. It's passed out of living memory.
You can see the massive deflation happening in China right now as youth unemployment hits 25%.
No thanks. We don't want that over here. Inflation is (and always will be) better than mass unemployment. If you want lower prices, open up our trade with others (IE: Import China's goods since they're suffering from deflation: we can benefit from those lower prices).
What are the root causes of that deflation though? I would posit the over extension of the Chinese economy in an effort to mimic "Number go up" results without the required fundamentals (see evergrande).
I see "inflation is good" parroted a lot, without much analysis as to why. I understand how continual inflation is a major driver of modern western economies, and those steering those economies require it to support current polocies and the general status quo. However, that being said, I fail to see how that makes it required for things to be "OK".
The price of a raspberry "inflates" in the winter, and "deflates" when in season. The price of commodity consumer electronics is in a continual state of deflation, as new teohnology emerges. At the microcosm prices move in both directions frequently, and are just deemed adjustments. Why then, at the macro scale is a continual increase in pricing considered a sign of economic health?
No thank you, we do not need China dumping their goods in our markets. Just look at the EV dumping going on in the EU.
Decoupling is why you see massive deflation and unemployment in China and part of the reason why you don’t see it in the USA. Opening our markets to them would doom many of our industries and drive up unemployment for our youth.
Fuck retailers. Have less shareholder profit and get over it. They want profit to be fixed or increasing. They view it in an accounting sense as something they cannot have decrease, ever. This is unrealistic and makes them do stupid things.
The hell? Where are you thirfting? The Goodwills near me sell clothes for less than $3 per garment. Toys are less than $5. Movies are a dollar, games are $5 per title, what state are you in?
Chickpeas, soyflakes, rice, hemp & chia seeds, quinoa, tofu, lentils, flour. Most of the dried goods have a shelf life of 1-2 years. The cost of them is sinking in germany. I'm fine with people complaining about rising cost of meat, eggs and dairy and ignoring that fine sources of protein, minerals and vitamins. More for me.
While having them home cooked is better, try some prepackaged Indian or Middle Eastern foods that might have them from a local health food store. Regular grocery stores might have them in some canned soups.
I’m personally not a fan of lentils, I find them somewhat dry/mealy in consistency, but I’m not going to turn down a good dish with them in it.
Most of the listed foods don't have much taste on its own. And nobody should eat them unprepared. RememberTheApollo_ described it well. But spices are a thing. With them you can transform them into culinary experiences.
Combine chickpeas with cumin, lemon juice, olive oil, tahini/peanut butter and garlic: delicious nurturing Hummus.
Combine chickpeas with parsley, onion, garlic, cumin, coriander, pepper and sesame seeds: mouth watering falafel.
Combine tomatopaste, oliveoil and spices to get a nice base for frying crumbled tofu (a complete protein) to emulate ground meat.
With all the dried food it's important to prepare them correctly (rinse, soak, cook) to get rid of plant toxins like phasin, solanin, oxalates or arsenic.
E.g. a study found out the best way to prepare natural rice. Peeled rice doesn't contain much arsenic but natural/brown rice may contain it in its shell (amounts vary by its country of origin).
Not really, but that can be a positive if you know how to spice food properly. I make a lentil taco recipe in the instant pot and it comes out pretty good as long as I don't forget any of my spices.