Inflation

[divs4ever]

Supply lines are really bad at the moment. I'm custom making a lot of stuff like it's the dark ages.

some would call that creativity , and self-sufficiency , maybe you are seeing the light at the end of the tunnel ( NO train coming )

 

[moXJO]

One problem with inflation, is that the high prices tend to stick around on consumer crap.
Will wages be sustainable when it all goes to sht and businesses start going down.

Be interesting if the supply lines are not sorted quickly.

 

[moXJO]

some would call that creativity , and self-sufficiency , maybe you are seeing the light at the end of the tunnel ( NO train coming )

A lot of these younger guys just wouldn't know how. Maybe manufacturing is coming back as I wouldn't mind doing the figures on some items that are no longer viable to ship.

Problem is if it all goes back to normal. You don't want to invest in a dead end.

 

[divs4ever]

well in the past , i have observed that when supply stays restricted , one of two things happen physical items are created by alternate sources ( which may be more expensive and/or lower quality ) or the items are substituted ( legally or not ) for services the usual result is job losses ( no product to provide )

the wages are liable to stay sustainable , but the people receiving those wages are liable to decrease ( not many workers will take a pay-cut to endure more stress and uncertainty )

the CURRENT danger is folks are losing trust in the supply lines , that MIGHT be a good thing for makers of warehouses and other storage facilities , but generally more expense for most businesses as they will have to pre-buy more inventory try to forecast trends/buying patterns better , on the other hand , local entrepreneurs might step in with supply line reductions ( because they are suddenly cost-competitive and time efficient )

 

[3 hound]

A lot of these younger guys just wouldn't know how. Maybe manufacturing is coming back as I wouldn't mind doing the figures on some items that are no longer viable to ship.

Problem is if it all goes back to normal. You don't want to invest in a dead end.

Don't know if this is technically inflation but I monitor cattle prices and they go up and down according to seasons and supply and demand - price of beef however only goes up and stays up and then goes up again and again. There seems to be no correlation between meat in the shop and animals in line to become meat in the shop.

I have quizzed Coles and Woolworths local managers about this many times with actual official prices and they look at me like I am from another planet and just say they have nothing to do with prices.

 

[divs4ever]

A lot of these younger guys just wouldn't know how. Maybe manufacturing is coming back as I wouldn't mind doing the figures on some items that are no longer viable to ship.

Problem is if it all goes back to normal. You don't want to invest in a dead end.

can it go back to normal , Just In Time is basically dead in the water ( one of those quaint theories that might be re-visited next century )

and that ' viable to ship ' has hit a big hurdle how long before the transport services untangle , how much two-year out-of date merchandise is sitting on containers still on the docks , say the next big disruption only causes a one year delay .. do you risk that

and of course many Western nations are consumer-driven economies what sort of mess has been created ( some demand destruction for a start , and that is liable to last for decades )

now locally that might all work out for the best AS LONG AS SOME GRAND POO-BAH ( computer or otherwise ) IN SOME REMOTE IVORY TOWER isn't making all the important decisions

 

[divs4ever]

Don't know if this is technically inflation but I monitor cattle prices and they go up and down according to seasons and supply and demand - price of beef however only goes up and stays up and then goes up again and again. There seems to be no correlation between meat in the shop and animals in line to become meat in the shop.

I have quizzed Coles and Woolworths local managers about this many times with actual official prices and they look at me like I am from another planet and just say they have nothing to do with prices.

now i can't talk with authority on meat , but did know a guy in the area of fruit and vegetable supply chain to the big retailers , and a lot of growers were under contracts and the retailers had invested a fair bit in cold storage to even out the supply

the glitch in that system MIGHT be rising energy costs , i guess time will tell

 

[3 hound]

now i can't talk with authority on meat , but did know a guy in the area of fruit and vegetable supply chain to the big retailers , and a lot of growers were under contracts and the retailers had invested a fair bit in cold storage to even out the supply

the glitch in that system MIGHT be rising energy costs , i guess time will tell

No I firmly believe the glitch is F'wit predators gouging both suppliers and consumers..... because they can

 

[sptrawler]

One problem with inflation, is that the high prices tend to stick around on consumer crap.
Will wages be sustainable when it all goes to sht and businesses start going down.

Be interesting if the supply lines are not sorted quickly.

The triple whammy of high prices, higher wages and higher power prices makes me wonder if everything goes up, or as you say businesses start going down and with it jobs and standard of living.
Interesting times.
On a brighter note, the MIL told me that she got 2% interest on her term deposit, for 12 months.

 

[moXJO]

On a brighter note, the MIL told me that she got 2% interest on her term deposit, for 12 months.

So she's only losing 5% or 20 something % depending on who you're asking.

 

[Value Collector]

Don't know if this is technically inflation but I monitor cattle prices and they go up and down according to seasons and supply and demand - price of beef however only goes up and stays up and then goes up again and again. There seems to be no correlation between meat in the shop and animals in line to become meat in the shop.

I have quizzed Coles and Woolworths local managers about this many times with actual official prices and they look at me like I am from another planet and just say they have nothing to do with prices.

The price of an animal at the farm gate only makes up a small portion of the price you pay for the flesh presented in the plastic containers in the supermarket.

So when the cattle price drops by say 30%, you shouldn't expect the price of the meat in the plastic trays to drop by exactly 30% too, because the price of all the other inputs probably stays the same or higher.

For example, if you pay $5.00 for some meat at woolies, only maybe $1 of that is the actual cattle price, so a 30% drop in the cattle price would only lower the price by $0.30 (30% of that $1 piece of cattle), an it would only drop $0.30 if all the other costs stayed the same.

The reason for this is that all the other costs that make up the $5 sale price stay they same.

eg, the following costs would not go down with the cattle price

• Trucking cattle to slaughter house (wages, fuel, maintenance, insurance etc)
• slaughter house costs (wages, water, gas, electricity, equipment, property expenses, insurance)
• butchering and packaging (wages, refrigeration, packaging, equipment)
• Trucking to supermarket distribution centres (wages, fuel, maintenance, refrigeration, insurance)
• Trucking to stores (wages, fuel, maintenance, refrigeration, insurance)
• Supermarket costs (wages, lighting, refrigeration, rent, maintenance, wastage, transaction costs, insurance etc)
• plus many other costs I haven't named

So all these other costs actually make up the bulk of the costs involved, its not just cost of the cattle at the farm gate, and inflation can be pushing up all these costs even if the raw material costs are declining.

Its also the reason you don't see petrol drop 50% when the oil price drops 50%, because again the cost of crude oil is only part of that total supply chain cost.

 

[sptrawler]

So she's only losing 5% or 20 something % depending on who you're asking.

Yes but she still finds it better than the 0.25% she has been getting, at 89 years old she isn't interested in signing up for incredible charts and becoming a day trader. ?

 

[3 hound]

The price of an animal at the farm gate only makes up a small portion of the price you pay for the flesh presented in the plastic containers in the supermarket.

But nobody pays for an animal at the farm gate.

The farmer has many inputs that don't change with the price he gets for his cattle as well, actually all the inputs increase very significantly.

Large food retailers are clearly a monopoly in Australia, I am the last one to call for price controls but monopolies do not follow free market principles so if ever there is an argument for price controls this would be it.

 

[Value Collector]

But nobody pays for an animal at the farm gate.

Cattle prices are actually often quoted as "farm gate prices" or sometimes "stock yard price", So when you are seeing the "cattle Price" thats called the farm gate price.

But did you actually understand what I wrote about all the other costs involved, and do you understand how reducing the cattle prices by X% won't ever mean the price of packaged meat at your local store with reduce by X%

The farmer has many inputs that don't change with the price he gets for his cattle as well, actually all the inputs increase very significantly.

Yes, just like any other commodity producer, as a farmer your profit will depend on your production costs being lower than the market price of your commodity, that is true whether your are producing Cattle, soybeans, corn, Iron Ore, Oil, Copper or Coal or any one of a 1000 other commodity products.

If your production costs are consistently not low enough for you to generate a profit, you should change businesses.

Large food retailers are clearly a monopoly in Australia, I am the last one to call for price controls but monopolies do not follow free market principles so if ever there is an argument for price controls this would be it.

The food retailers work on about a 30% mark up based on the price they pay for the product delivered to their store, and that reduces down to about a 3% profit margin or less when all the other costs are deducted, if you don't believe me check out the annual reports of Coles and woolies.

 

[divs4ever]

No I firmly believe the glitch is F'wit predators gouging both suppliers and consumers..... because they can

not according to some major food retailers ( whom i note , no longer use the claim of low margins as a marketing angle )

( i hold WOW and COL )

but rising energy costs will be a problem they will have reduced control over ( even if they upgrade technology to reduce those future costs )

 

[sptrawler]

So she's only losing 5% or 20 something % depending on who you're asking.

I just checked the term deposit rates on line, I think she has been duped, I bet it's only 0.2% she probably miss heard. ?

 

[Value Collector]

No I firmly believe the glitch is F'wit predators gouging both suppliers and consumers..... because they can

Only about 3% of the price you pay at Coles and Woolies is their profit, the rest goes to suppliers and their running costs or tax, I wouldn't call a 3% profit margin gouging.

It's a pretty competitive market, if Coles and Woolies were making excessive profits, some one else would come on the scene and offer the same service for less, and steal a chunk of market share.

However, so far their competitors have to either offer less service or charge higher prices.

Eg, Costco and Aldi are examples where they charge lower prices but only do so by providing less service, while IGA, SPA and other market participants have a niche market but generally have slightly higher average prices.

 

[JohnDe]

Keep an eye on New Zealand's inflation and how their Reserve Bank and government react.

Inflation bites hard in New Zealand

If Australia wants to know what runaway inflation looks like, forget the US. It just has to look across the ditch.
The New Zealand central bank sees inflation peaking at 7 per cent in the June quarter and on Wednesday it put up the official cash rate another 50 basis points to 2 per cent with the expectation of much more to come. Australia’s cash rate currently sits at 0.35 per cent.

“I would say what the New Zealand government has is the early stages of a wages price spiral,” says HSBC chief economist Paul Bloxham

Bloxham is the man who in 2014 dubbed the country the rock star economy. But New Zealand’s rock star status is long gone.

Australia is a little behind in monetary tightening but will it go the same way? It makes New Zealand a compelling watch on central bank strategy, wages policy and housing.

In his May newsletter New Zealand economist Tony Alexander had a sobering revelation. Four out of 10 families selling their house and surveyed by real estate agents in the last month said they were selling to move to Australia.

Global pressures have hit New Zealand much harder than Australia. It is a smaller, less diversified economy and far more reliant on the free flow of goods, services and labour across borders. Closed borders, supply chain shocks and a roaring housing market ignited inflation. The decision on wages has simply added more fuel. “The minimum wage was lifted in line with the inflation print in April,” says Bloxham.

From 2011 to 2019 inflation in New Zealand averaged 1.2 per cent. On April 1, with inflation running at 6.9 per cent for the March quarter, the NZ government lifted the minimum wage from $NZ20 ($18.25) an hour to $NZ21.20 an hour, up 6 per cent.

The idea that New Zealand could be entering a wages price spiral is ominous for Australian business as it waits for the decision of the Fair Work Commission on the minimum wage next month.

Anthony Albanese has made it clear Labor wants to see the minimum wage keep pace with inflation, currently at 5.1 per cent.

“Prices go up, wages go up,” says Bloxham of the New Zealand problem.

“Whereas in Australia we haven’t got that as yet. It is a risk, but it’s not evident yet. The wages price index was running at 2.4 per cent in the first quarter.”

Faced with more advanced and now embedded inflation, Bloxham believes the Reserve Bank of New Zealand will front-load its monetary policy tightening.

“As they perceive it, they have an enormous inflation challenge. We expect they will get the cash rate to 3.25 per cent by the end of this year. But we think at that point, slamming on the brakes is tangibly going to slow the economy down and in particular cool the housing market,” he says.

It is a remarkable change of direction by the RBNZ. Early last year there was still chatter about whether the central bank would adopt negative interest rates.

HSBC expects that by the end of the year, the RBNZ will have lifted its cash rate by 300 basis points in just over a year.

House prices in New Zealand have jumped 46 per cent since 2019, according to Lisa Hinson, the head of the urban property peak body Urban Development Institute, who spoke at the annual event of its local sister organisation in Sydney this week.

In just a year New Zealand mortgage rates have doubled, off a low of 2.5 per cent. The banks have yet to respond to this week’s rise in the cash rate. And 60 per cent of mortgages are fixed for less than a year. Hinson says that where a $NZ1m loan cost $25,000 in annual interest last year, by 2023 it will cost $NZ60,000 to service.

The RBNZ has said that 49 per cent of first home buyers who bought at the peak are likely to face serviceability stress if mortgage rates hit 6 per cent. Some banks are not far off that now.

Uncomfortable as it all looks, Bloxham does not see inflation rising much above the RBNZ’s forecast peak of 7 per cent.

“The RBNZ by lifting the interest rate significantly and with a global slowdown we don’t think it will deliver further rate hikes in 2023. It’s going to be very front- loaded and it’s going to have a strong impact,” he says.

The medicine will be painful. The RBNZ forecasts an increase in unemployment, a slowing of the economy and a decline in house prices (already down 10 per cent in Auckland). Rents are going up in New Zealand, as is homelessness.

Bloxham says while there are elements of the New Zealand story happening in Australia, it is not as extreme.

“Here the RBA has to lift rates over coming months to slow things down but I don’t think we are quite at the point that New Zealand is at,” he says.

TICKY FULLERTON
EDITOR-AT-LARGE, THE AUSTRALIAN BUSINESS REVIEW

 

[Eric%]

AMP banking has some decent term deposit rates but they are up to 5 yrs - 4.15% pa

 

[moXJO]

Yes but she still finds it better than the 0.25% she has been getting, at 89 years old she isn't interested in signing up for incredible charts and becoming a day trader. ?

Tell her I've got a crypto investment.