Chronicles Of Depression 2.0: #128

I must do two articles in one post, because they’re joined at the hip.

Nothing merry about May for US consumers

American consumers continue to feel the impact of rising prices for everyday goods as a combination of higher oil cost and a weakened economy suggest the United States has entered a stagflationary environment.

Fresh data from the US Labour Department shows that producer prices rose at their fastest pace in six months in May, pushed higher by higher fuel and food prices. Producer prices rose by 1.4pc in May on a seasonally adjusted basis, a 7.2pc increase on the year.

It was the eighth consecutive month prices rose more than 6pc on an annual basis. The Labour Department said that the last time this happened was in the period between 1977-1982, when the US economy was suffering from intense stagflation.

A second set of economic data – on US industrial production – indicated that consumers face even higher prices in the near term, as production fell for the second month in a row in May.

As a result, the average US citizen is paying a lot more for basic goods at a time when the economy is severely weakened and the unemployment rate continues to rise.

Emphasis added by me.

Now:

Milk, beer, soap: why the price of oil directly affects everything

Jonathan Loynes, chief economist at Capital Economics, said he expects more businesses to be affected. “The longer oil prices stay at current levels then the bigger the problem, particularly at a time when the economy is continuing to slow,” he said. “It is hard to think of a company that isn’t affected at all by higher oil prices. It’s a pretty widespread phenomenon.”

According to Mr Loynes, producers and manufacturers have seen their raw material costs, which include oil and energy, climb by almost 30pc over the past year. Rising costs mean businesses have to make choices about how to ensure their profits do not fall dramatically, he added, and the options are not attractive. They include raising the price for consumers or cutting costs in other ways, such as shedding labour.

Emphasis added by me.

Now the first tie-in with the last paragraph of the first piece:

But the problem with the high value of oil is that it affects customers directly too, via high petrol prices at the pump and high energy bills at home. “Oil prices do two things for companies. First of all they raise their own costs, but secondly, because they squeeze the real income of their customers, you also get weaker demand,” Mr Loynes said. “Which means it’s very difficult to pass on those higher costs to your customers. I suspect a lot of companies that use a lot of oil will see a fairly significant reduction in profits growth.”

And the killshot:

“Prices have continued to rise over the past few weeks and it is very unlikely that industry has adjusted its pricing that quickly. I suspect we are going to go through a period where cost increases are evident at the consumers’ stage,” he said.

Emphasis added by me.

Stagnant economic growth plus price inflation equals stagflation.

It begins.

Advertisements
Explore posts in the same categories: C.O.A.T. - Money, C.O.A.T. - Other, Depression 2.0

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s


%d bloggers like this: