Friday, January 28, 2022

The clearest predictor yet of out-of-control inflation


Sundance points out that the latest wholesale price increases from Kraft-Heinz amount not just to inflation, but to embryonic hyperinflation.  Bold, underlined text is my emphasis.

Last year, when CTH discussed the original Kraft-Heinz wholesale notification for January 2022, we warned it was only the first round.  The reason for waves of price increases is specifically, because each of the processed food categories is impacted differently depending on the amount of processing involved.  Each category is different.

This understanding is why we warned everyone in October of last year to make as much preparation as possible for waves of food inflation.  The original notification for contracted terms in 30, 60 and 90 days was +20%.  Meaning this month, on those group and sectors, prices to retailers went up by 20%, and you are seeing that in the supermarket now.

For the next wave, Kraft-Heinz is telling wholesalers the fulfillment shipments arriving in March will be up to +30% on the next categories.  Oscar Mayer proteins will be the biggest increase at the top end (+30%), Maxwell House coffee on the lower end (+5-10%) and the juice and drink category around +20%.  [A $5 beverage pack will cost $6 in a few short weeks.]

The processing sector is still dealing with cumulative cost increases.  The fulfillment terms are still catching up with the increased costs.  These announcements are ON TOP OF the current price increases we are feeling.  We are entering hyper-inflation.

. . .

Keep in mind the points we noted in December:

(1) The outlined price increases noted are against current price terms and contracts.  Meaning, these are price increases from right now to the next fulfillment.  These are not inflation price increases which are compared to a year ago.  These are increases from the current price right now.

(2) The price increases are not the final price increase.  This is the price of a contract today from the field to the distribution center.  The retailer also has additional price increases (transportation, energy, labor, etc) which they need to add to the wholesale price before you see the final price at retail (grocery store).

The final field to fork price is not yet known but will be higher than noted above.  We are only seeing the notifications from field through processing and into warehousing and distribution.

Additionally, the more an item needs to be processed, the higher the price increase will be.  Food items that require multiple raw materials, ingredients and bases for processing (ex. condiments), when combined with increased packaging costs (oil, energy), will be much higher than foods with less processing, handling and packaging.

There's more at the link.

So, let's consider a hard number.  If a product costing $1.00 in November went through a 20% wholesale price increase in December, it would have cost the retailer $1.20 to buy it in January (plus the additional costs described above, for which we can't account here) and put it on his shelves.  Given that he'll charge a percentage profit on it, the actual price increase would be more than 20%.

Now, on that same product, a 30% wholesale price increase is to be implemented in March.  That means, in April, a retailer will have to pay $1.56 to put it on his shelves, plus additional costs, plus profit, plus blah blah blah.  In other words, from November to April - six months - the price of that product will have increased by 56c, or 56%.  Over the course of one year, if that rate of increase continues, the item's price will have more than doubled.  Not all product prices will go up by that much, but in our example case, it will.

That's more than 100% inflation in that product's price in a single year - getting perilously close to hyperinflation territory.

There's no point in repeating my frequent warnings to prepare as best you can.  You're now starting to see those warnings become reality.



SiGraybeard said...

Remember Gonzalo Lira? Economics guy who used to blog years ago.

Back in 2010, he had a post that said,

If we think that hyperinflation is simply inflation on steroids—inflation-plus—inflation with balls ...

But hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals.

He went on to say that Hyperinflation isn't just bad inflation. It looks like it, but in reality, hyperinflation is economic collapse. It's the complete loss of confidence in the ability of the currency to maintain any semblance of value. It's when the holder of currency believes that it will be worth less at any time in the future, so anything they need will be more expensive later - whether that's minutes or days later doesn't mean much.

Are we in the opening stages of full tilt economic collapse? I don't know, but last May John Williams of Shadowstats predicted it to be around this time. “I am looking down the road, and in early 2022, I am looking for something close to a hyperinflationary circumstance and effectively a collapsed economy.”

The only positive way to look at what's going on is that we have genuine inflation caused by the central banks and Federal spending insanity, coupled with the effect of the government's Covid lockdowns creating real supply and demand issues. I don't know if those effects could be big enough.

To err is human; to screw things up requires government. To really, really screw things up requires a government and central bank system.

Tim said...

Just a minor correction "So, let's consider a hard number. If a product costing $1.00 in November went through a 20% wholesale price increase in December, it would have cost the retailer $1.20 to buy it in January (plus the additional costs described above, for which we can't account here) and put it on his shelves. Given that he'll charge a percentage profit on it, the actual price increase would be more than 20%."
This is incorrect. As long as the percentage profit he takes is consistent (lets say 20% for ease of calculation, then when it cost him 1 he charged 1.20. When his cost goes to 1.20, the he will charge 1.44, or 1.44/1.2 or still a 20 percent increase. Multiplication is commutative and associative.

Feather Blade said...

... how much of the wholesale price increase is manufacturers making things more expensive because they think no one will notice they did it deliberately and for no other reason that their stock price, rather than them trying to make up for a scarcity of inputs?

Michael said...

Feather Blade, that's the Sockpuppets argument.

Blame the Manufacturers for the Price Increases. That leads You know to that REALLY SUCCESSFUL Tactic of Price Controls (like Socialism, never worked anywhere once they run out of other people's money).

In a normal market the Price of an item or service depends on the costs involved to make it and enough profit to make it worthwhile.

Competition keeps the excessive profit under control as folks simply stop buying your too expensive item or buy a competitor's product.

If you look towards the stock market, you'll notice Basics Stocks like General Mills are doing about normal, COVID Stocks like Moderna are BOOMING.

Texas Mike said...

Not many. Unneccessary price hikes on commodities will result in someone else undercutting your price and stealing your customers.

glasslass said...

Walmart has 1lb Oscar Mayer bacon for $11.58 and Sam's only had turkey bacon. Our local Walgreens was running a sale on OM bacon 2 for $10. No limit. I bought what they had.

paladin3001 said...

Example from today. I like my snack food and Cheeto's brand are my Achille's heel. I bought two bags for $8.00 (CAD). Back in December the same "sale" Was $7.00. This isn't the only increase I have seen. Last week we had Campbell's soup on sale $0.69 a can. It used to go on sale for $0.50 a can (a year ago was the last sale I believe). I still grabbed a flat because I am seeing the writing on the wall.
I work in a grocery store and we are seeing price increases on a weekly basis on basic needs.

Aesop said...

Brace for impact.
Brace. Brace. Brace.
Heads down.
Stay down.

Thank you for flying Air Fed.

Unknown said...

Try it again! Why can't these sites keep their sign ins, sign outs, whatever the same??? Anyway, what I tried to say before was that a friend of mine at church was telling me this morning that the Dollar Tree store he works at will close at 5:30 one day next week so they can make all the price increases, and there will only be "1" isle in the whole store with $1.00 items in it. All the rest will be increased to over a dollar and in some cases up to $5.00. I live in the inner city of a large metropolis. And as usual when things go from bad to really bad, it's the poorest of the poor that suffer most. The food banks aren't getting the donations they were from the various stores either. So some will feel this move in on us by a communist regime, so very much worse that the majority. But In God We Trust, though not a very popular statement these days is still the best (if not the only) way to go! God's blessings to you all. Love your neighbor as yourself, sounds like tall order, but maybe the only order that makes sense.👵😇