I started commenting on the economic slow down in October of last year (2007). What I highlighted was that people are buying cheaper staples. Sales of pasta and peanut butter were up. The job report held pretty steady until December of 2007. Although I think September, October, and November were suspect in their number collections. The independent household survey was down for those months too. So as the housing slump is waiting to hit the bottom (we are in a stare down situation now between the potential buyers and sellers) inflation is up. This is mainly a result of energy prices infiltrating the cost to produce everything else.
To combat times of recession business tends to have promotions to motivate potential buyers to buy. Sometimes that is the reduction of price. That cuts into profit margins, but increases revenue and keeps the cash flow positive. But if profit margins are already priced out due to the increase in resource costs then what do you do to stay in business? You fear something I think we are on the cusp of, a sharp pull back in buying. People are starting to budget for $4.00 gallon of gas. People are not expecting their raise to be greater than inflation.
Here are some stats I pulled from an article by Tami Luhby called Pain in the Pocketbook.
- Gasoline costs as of today 2/27/08 is $3.15
- January had a Consumer Price Index increase of 0.4% – higher than expected
- The Consumer Price Index over the last twelve months is 4.8% (higher than most raise increases)
- Food and beverages increased by 4.8%
- Transportation went up by 9.4%
- The cost of a bushel corn was $5.12 in January. That is up 41% from a year ago.
- So the cost of corn itself is up, but corn is also used to feed cows, pigs, and the like, which increases the cost of those products.
Working Thoughts 