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Inflation, Corporate Profitaking and Oil Prices

September 12, 2008

The cost of raw goods has little to do with prices when costs decrease for Corporate America.

With the decline and projection of decline in oil prices and raw costs, wouldn’t you imagine a reduction in prices and inflation? The popular media says that inflation is running at its fastest pace in 17 years due in large part to soaring energy prices. Shouldn’t prices fall in tandem with declines in the cost of doing business? The public line is that recent price hikes for everything from food products to paper towels are likely to stick. In the aisles of the grocery store, once prices move in an upward direction, they tend to stay there.

The royal excuse is that prices over the years haven’t kept pace. To keep those prices “down,” many creative methods have been employed, including sending jobs and production overseas to emerging markets. A further explanation dictates that some companies that have raised prices in the last year still have lower profit margins. They won’t be wanting to give that profit up for the year or in the future.

The lead time to create a product is much greater and affects prices over the longer term. Higher prices for corn and grain have meant higher feed costs for pork producers. As a result, hogs have been sent to the slaughter at a record rate this year to avoid huge losses. Next year, the consumer will pay for this years’ hog extravaganza.  A smaller breeding herd means fewer pigs will come to market next year and prices are likely to edge upward, especially with an increase in demand. This same finding could easily apply to cattle and other farm animals used for food, creating almost certain tension in the food market next year.

Now the media is downplaying price increases, proving the point that this writer has been making all along. For example, prices are down for expenses, but companies are seeking to make back some of the “loss” of doing business during the short-term. That could be perceived as normal in the business world. Prices for oil refiners have doubled in the last year but gasoline prices have increased a “mere” 38 percent that has sent the nation into a tizzy. TNTalk! has disclosed and proved that Big Oil does not make huge sums of money on the price of gasoline at all, but rather on other petroleum by-products.

Hurricane Ike

Hurricane Ike

Low gasoline production along with the excuse of redundant hurricanes could keep prices high. As consumers have cut back on their driving, refiners have produced less gasoline, keeping supplies low and prices high.

Another ploy of manufacturers is not raising prices, but instead shrinking packaging and portions. The appearance of pricing might remain the same, but the food you are buying will less in quantity. Combined with record inflation and rising prices along with overall upward fuel pressures, the American consumer and American business is being hit hard. Since businesses are looking to make up any loss in process, consumers will carry the weight despite declining or stagnant incomes.

Wages have been stagnant for some time and record numbers of Americans are unemployed at a time when prices are rising every upward, in large part because a devalued dollar overseas. Business is getting caught in a conundrum of rising prices and lower profits on both sides for the immediate term. The irony is that corporate multinationals and lack of vision in government have created and abetted the very instruments that are squeezing their profits and income.

Downplaying rising prices is not the answer to the nation’s economic woes. Getting the economy back on track and getting Americans involved with competitive and decent gainful employment is the key to success. Unfortunately, because of the trailing housing market, suffering economy and the continued export of jobs, getting the economy on track is going to prove to be difficult, especially with the constant government bailout of business. The state of the economy has become a national security issue, but isn’t being addressed that way. You can have something to say about that. ~ E. Manning

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