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Jason

When Will Retailers Pass Input Inflation On To The Consumer?

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I currently work in the food & drink export sector (maintain databases etc) and run lots of reports for the directors, like price inflation (we only sell to over seas customers). Usually the first three months of the year most price increases come through, and have found food inflation is around 3-6% over the last 12 months (although this is difficult to measure). I was therefore very surprised to find March's CPI figure to be –0.4% for food and drink over the last twelve months.

I may have been jumping the gun a bit with my ranting, as they would be measuring selling prices from the likes of Tesco that refuse these increases, although we buy from the same suppliers.

But what has struck me to make this post is two major customers of ours have refused to accept ANY price increases over 2006 (including back dated increases). After lots of debates, and pointing out products are cheaper to them because of the lower pound (they pay in sterling, of which has fallen against their currency), the directors are slowing giving in to fixing the prices for the year. There is a general thinking that we can pass increases on in 2007 to make up for it (like that's going to happen!)

But this must be happening with lots of retailers, not just in the food & drink sector. They must be absorbing all these additional costs lowering their profits. A few people I talk to use the 'head in the sand' strategy and hope everything will be ok… But unless input prices fall I can't see that being the case.

One thing we can guarantee is businesses will grumble if they are making smaller profits…

But this can't go on forever. Eventually something will break, but what?

+ Businesses pass on all these costs maintaining their margins producing inflation, showing up in the CPI?

+ They try to keep profits high by reducing costs, like labour, meaning more unemployment?

+ They go bust. Which makes it easier for other competitors to increase prices?

What else have I missed?

I see can lots of inflation building up in the system that is waiting to be passed onto customers, such as the company I work for (except our customers are not in this country). I just can't see anyway for the 'pressure' to be released without some sort of negative consequence.

So what's going to happen if this continues?

Edited by Jason

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Business is a war of attrition - businesses can survive on waver thin margins, its just the shareholders get restless. In the meantime you pursue cost cutting relentlessly.

You can only pass on price increases if your customers have the money to pay them. If you put prices up and they then buy less, the result is the same, smaller profit. However, you do have the option to scale down your business, to maintain margin, but at the expense of probably selling off your assets in a less than perfect environment.

In this environment, where wages aren't going up, and the essentials go up then money gets taken away from discretionary spend to compensate.

If oil prices are maintained, then you will start to see a squeeze on the rest of the economy - eating out and shopping for fun should be the first casulties. Unless you can get higher wages then you have to economise, and if you can't get higher wages because companies don't have the profits to fund them, then its tough !

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Business is a war of attrition - businesses can survive on waver thin margins, its just the shareholders get restless. In the meantime you pursue cost cutting relentlessly.

You can only pass on price increases if your customers have the money to pay them. If you put prices up and they then buy less, the result is the same, smaller profit. However, you do have the option to scale down your business, to maintain margin, but at the expense of probably selling off your assets in a less than perfect environment.

In this environment, where wages aren't going up, and the essentials go up then money gets taken away from discretionary spend to compensate.

If oil prices are maintained, then you will start to see a squeeze on the rest of the economy - eating out and shopping for fun should be the first casulties. Unless you can get higher wages then you have to economise, and if you can't get higher wages because companies don't have the profits to fund them, then its tough !

Is that when the people working in retail put their houses on the market then ??

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I don't think retailers have the ability to pass on inflation. The only long term hope for them is consolidation or survival of the fittest. It's always been a tough line of business to be in, wouldn't go near it with a bargepole.

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Business is a war of attrition - businesses can survive on waver thin margins, its just the shareholders get restless. In the meantime you pursue cost cutting relentlessly.

You can only pass on price increases if your customers have the money to pay them.

Tell that to TTRTR. Lol.

So what your really saying is a recession is enevitable, as unemployment and a general squeeze on the consumer continues? This is what I thought all along.

Lower interest rates will help, but they will just cause more input inflation for these retailers. Infact, you could argue this is what happened in August with the rate cut. Sure, demand did increase, but input inflation increased too - maybe this was partly due to the rate cut.

What I sort of asking, if interest rates reduced again like in August what will happen? Sure I can see it giving a boost to demand, but what will happen to retailers/wholesalers.manufacturers? Surely it will cause more input inflation that they will have to absorb. There must be a point when they can no longer absorb this and pass it on. With unemployment increasing in the mean time.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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