A Few Percent Here, A Few Percent There.

Either for posterity’s sake or because I am a glutton for punishment, I keep a folder in my email inbox titled “Price Increase Letters.”  Between January 1st and July 3rd, I received 85 emails from suppliers indicating a price increase.  Some of our suppliers are old school and still send actual letters.  I have a stack of 19 price increase letters sitting on my desk.  That period represented 131 of the 261 business days in 2021.  We received at least 104 increases over those 131 days.  That is almost one increase letter a day.  And I wonder why our purchasing team is cantankerous. 

Many of our main vendors are on round two or three of price increases for the year.  They also indicate that they still see cost pressures in their supply chains.  Through the magic of compounding, three, 5 percent price increases result in an overall price increase of almost 16%.  To put it in real terms, what cost us $100 at the beginning of the year will probably cost $116 by the end of the year.       

As our fearless monetary officials repeatedly tell us, they believe the inflation we are seeing is “transitory.”  Of course it is, nothing lasts forever.  16% transitory inflation is significant.  If I were in the press pool, the question I would ask Fed Chairman Powell and his cronies is, “Are these high prices the new normal?  Do you expect prices to come down at any point?”  Here’s a hint to the answer:  prices are sticky.  Once they go up, it will take a recession for them to come down.  Be careful of what you wish for if you want prices to decline. 

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