The Hardware Man - The Increased Price of Goods
Howdy folks,
Pop quiz next week. Hope you have been paying attention.
We have experienced everything increasing in price over the last several years. Since COVID, we have seen core prices rise over 25%. Including energy prices and food, we have felt this increase in our budgets and overall optimism in life. For many of us, the only rate that hasn’t increased that much is our pay.
Inflation is the continual rise of prices of a basket of goods over the course of time. It is countered by a loss of purchasing power by the consumer. For example, $100 back in January 2020 bought a certain amount of goods. Today, if we were to purchase that same amount of goods, it would cost us $125. This is not an increase of just one solitary item, but is measured against a basket, or collection of stable goods. Consider a trip to the grocery store and you buy your essentials – Milk, Eggs, Cheese, Bread and Meat. Either your shopping bag or wallet is lighter as you head out the exit.
This topic can go on forever, unlike this article, so we’ll keep it fairly simple without a bunch of nuances. As we discussed a couple weeks ago, supply and demand impact the price we pay for a good or service. When supply tightens, prices rise. When demand rise, prices rise. This shift, if not countered with increased supply to match demand, forces a new price floor. This is where the new higher price will remain until another force impacts the balance again. In microeconomics, we can study this phenomena on one item. Observing the larger scope of impact is the study of macroeconomics. Inflation is a macro, or big picture view of prices.
Some goods impact our daily lives more than others. Eggs had a period of steep price increases because of a virus that triggered the culling of millions of chickens. Once baby chicks grew to be able to lay, the price of eggs naturally dropped because supply recovered quickly. We are attuned and sensitive to the price of oil, or specifically the price of gas and diesel. The United State’s economy is directly impacted by the price of oil, as we are reliant on it for transportation and production of many items we use in our daily lives. Once (and if) the conflict in Iran is settled, price for fuel should stabilize back to a historically normal level.
Not that prices will ever go down to what they were. I can’t say I have seen that happen for any extended period of time. The longer prices remain elevated, the higher the likelihood of prices staying up. Trucking rates increase to cover the new costs. Those temporary fuel surcharges become permanent. That increase infiltrates our landed cost of product which forces retail prices to rise. Cost of living increases and demand for higher wages grows to manage the new grocery bill and overhead expenses.
Reality is, if prices would drop to pre-covid levels, as in drop 25%, the impact on our daily lives would be severe and damaging in the long run. Spending would naturally increase because the price point has shifted. The incentive to produce at current levels for a reduced rate would diminish and supply would decrease. And you certainly wouldn’t want to give up any wage gains in exchange for lower prices. I do think we will see some decrease in some prices, but not too much.
Whether we like it or not, inflation is a regular part of economic life. Controlled inflation, at a historical rate of 2% or 3% is manageable and marginally inconvenient. High inflation, like what we dealt with in the past few years, hurts while markets and payroll adjust for the new normal. Much like we dealt with it in the 1970’s, we will adjust, both financially and mentally.
Daniel Karns and his wife own Clintonville Hardware & Rental along with other businesses. Join the discussion by contacting him at info@clintonvillehardware.com.
