A well-established deli on the corner that I hadn’t visited before caught my attention. I decided to stop by and discovered that this deli, beloved by locals, had been in operation for decades.
On the paper menu, I noticed that the prices had been crossed out. The owner pointed to a blackboard displaying the prices for the day. 18 months ago, a sandwich on the paper menu was priced at $9, but on that day, the price on the blackboard was $15 or even higher.
I mentioned the price difference to the owner, and he looked troubled. He couldn’t afford to reprint the menus, so the blackboard was the only way to keep up with the constantly rising prices.
He seemed visibly upset by the situation, but with limited profit margins, raising prices was necessary to keep the business profitable. Prices for everything from ingredients, transportation, utilities, rent, labor (he needed to retain staff to compete in a limited market), insurance, and maintenance had all soared.
This was a tragedy, with no one there rubbing their hands together saying, “Now we can make more money from consumers.”
Price increases will reduce demand, and the deli owner didn’t know how much of an increase consumers could bear. They had to test the waters, hoping not to break the psychological threshold of sandwich customers. Clearly, they were reluctant to raise prices, especially in the consumer-facing food industry, where people are very sensitive to price hikes.
It’s not just this deli – throughout the entire industry structure, from retailers to wholesalers, institutions are facing increasingly higher costs. They don’t like it, and neither do customers. Business owners are doing their best to hide the rising costs and shrinking portions, but these are stopgap measures, especially in worsening inflation scenarios. The Producer Price Index has been rising all year, not improving but worsening, and every retailer has to bear these costs.
And it’s not just commodity prices going up; service and labor costs are also increasing, as well as insurance. Last year, auto insurance inflation rates reached double digits, and home insurance has been doing the same for the past two years.
All of this is the result of the Federal Reserve’s purchase of around $6 trillion in government debt, debt accumulated during the insane spending by Congress in 2020 and beyond. This money has been dispersed across the entire economy, diluting the value of existing currency. Despite whatever the Biden administration claims, all prices are rising and haven’t stopped.
We are fortunate that, different from the 1970s, private enterprises are not being blamed for the chaos in this current round of inflation. With better sources of information, most people (though I haven’t seen any polls) are clear that the real culprits are the government and the central bank.
“Why have food prices shot up so much, and why they remain stubbornly high?” asked Democratic Senator Elizabeth Warren at a hearing. “The answer is staring us in the face when people dig into these numbers: food prices are up because old-fashioned companies are price-gouging.” Biden has established a “strike force” to “eliminate illegal practices by businesses that raise prices through anti-competitive, unfair, deceptive, or fraudulent activities.”
In other words, they are trying to pin the actual faults of the government on businesses. They have been attempting this for decades, even over a hundred years. However, this time it isn’t working, likely because public trust in the government has reached rock bottom.
People have witnessed how small businesses were deliberately crushed during the pandemic, and their survival is simply miraculous. When they were finally allowed to reopen, they faced severe inflation, searching for new customers but facing a serious blow due to declining real incomes.
This is an ongoing issue. Today, people can see it in the worried expressions of every store owner – they are concerned about everything. Balancing the books is a brutal test, like hitting a wall. Borrowing only gets you so far, and dealing with existing interest rates is another blow.
Inflation has thrown accounting into disarray, built fundamentally on stable or slowly moving units of account. Planning becomes difficult, even impossible, when values keep dropping and prices are shooting up unpredictably every day. Hence, there’s been a huge shift in the time horizons of businesses. They are no longer planning for 5, 10, or 20 years but rather considering how to survive another year or even just a month.
Without a doubt, inflation has intensified this year again, with the dollar estimated to have devalued by a quarter in the past four years. For specific goods and services, it’s much more, and we don’t know what next year may hold; things could get worse.
There are initial signs that the Fed is no longer attempting to clean up the mess from 2020-2022 but is instead accelerating the printing of more money. Since February, M2 money stock has increased by another $100 billion, and we have no historical experience to tell us what comes next.
Inflation does have winners: governments, bond traders, heavily indebted individuals and industries, as well as those living off government relief. For others, it’s losers as it crushes businesses and disrupts social structures. Adding insult to injury is that during the most inflationary 40 years, we’ve heard for three years that inflation is cooling down, that the Fed has “tamed” inflation. We’ve heard that phrase hundreds of times!
Meanwhile, from what I’ve observed on prices and conversations with others, things seem to be getting worse.
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This translation and rephrasing removes the original details of the reporter, publisher, and date in the original article.