That Inflation We Were Warned About is Already Here
Americans have received a steady dose of ‘inflation is coming’ news stories. Well, that jump in prices for consumer goods is already upon us.
Proctor & Gamble, Coca-Cola, J.M. Smucker and Kimberly-Clark have announced upcoming price hikes or have already raised prices all due to higher commodity prices.
Kimberly-Clark expects to raise prices in June on household necessities like Scott brand toilet paper, Huggies Diapers, and feminine hygiene products. The increases will vary by product type and brand but will likely be in the mid-to-high single-digit percent range.
Similarly, Procter & Gamble announced today that it would be increasing prices in September on its baby, feminine hygiene and incontinence products by about the same amount as Kimberly-Clark.
Yesterday, Coca-Cola CEO James Quincey announced that the company would be raising prices on some of its products. He didn’t offer an exact timeline or which products will be affected, he did say that “We are well-hedged in ’21, but there’s pressure built up for ’22, and so there will have to be some price increases.”
This wave of inflationary pressure was kicked-off last year when J.M. Smucker announced price increases for its Jif peanut butter products due to falling peanut yields.
Gas prices are on the rise as the pandemic glut subsides and the global economy roars back to life. But oil doesn’t just affect gasoline costs – it’s used to make plastics, rubber, paints, dyes, fertilizer, and thousands of other products.
All of these increases were attributed to a single cause: the cost of the inputs (oil, paper, peanuts, etc) has jumped making the products more expensive to produce. But, why are all these different commodities experiencing price increases? Lots of different reasons.
Why Everything is Getting More Expensive
Three rounds of stimulus shoved thousands of dollars into the hands of Americans creating increased demand for products. Those production and distribution channels are struggling to get back to full capacity while following CDC COVID guidelines. All of this creates demand-pull inflation which occurs when there is “too much money chasing too few goods.”
All of that coupled with the Federal Reserve announcing that it has no plans to raise interest rates in 2021 or 2022, paves the way for increased demand while supply is limited.
Why Coca-Cola is Going to Get More Expensive
Sugar is facing a shipping container shortage, heavy port delays, and depressed yields in some countries.
Metals, including aluminum, are dealing with huge increases in demand from China and a supply chain that is still largely disrupted due to the pandemic.
Oil prices are on the rise and a key input for the production of plastic bottles and caps. Petroleum demand is on the rise as global economies re-open. As the over-supply during the pandemic winds down, oil prices could rise sharply before production can be ramped back up to meet surging demand.
Why Diapers and Feminine Hygiene Products are Getting More Expensive
If you read the previous paragraphs on Coca-Cola’s pricing pressure, you have probably figured this one out – oil and wood prices. Those are key inputs into the large amounts of paper, elastic and plastic that go into a box of pampers and high demand coupled with short supply and disrupted logistics makes for, that’s right class, inflation.
How Bad is Inflation Going to Get?
The Fed predicted in March that inflation would reach 2.4% overall for 2021 – an increase of .6% from its previous estimate.
Kiplinger expects inflation to hit 2.7% overall and 2.3% if gas and food are taken out.
Other analysts predict anything from 2.1% to 3.7%.
How long the inflationary trend continues and how sharp price increases get is largely contingent on the labor market. If the labor market tightens, employers will increase wages to better compete for workers. That would put even more money into an overheated economy creating even larger demand when supply is tight.
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