The Expert Podcast

# The Price Paradox: Why Your Grocery Bill Won't Shrink Even as the Economy Does

The economy is seeing a double whammy both from inflation of cost and also deflation of capital at the same time that prices are going up for everything home prices interest rates gasoline groceries insurance taxes first of all people have less cash to spend on them because incomes are reducing there's no stimulus money anymore but more important is the wealth effect is starting to hit consumers a lot of times people would spend money even without income if they thought they had capital reserves like their 401k fund was through the roof their cryptocurrency holdings were high their home value was high.

And so for the last 12 to 18 months people saw stock values go up their 401k account went up their cryptocurrency went up so they said well even if i don't make the income i can spend some money on home modification new car clothes going out to eat those kind of things because i have more cash in the bank in my 401k well now when the stock market's crashing five trillion dollars has gone away from americans wealth perspective so everybody's less so that's when you start tightening your belt.

What happens when consumers start to spend less at the same time that there is inflation at the same time the gas is six bucks a gallon what happens is the sellers of those items have even more problems because even though they've raised prices of things six bucks for gas thirty dollars for a plate of wings whatever you're selling you still have overhead you still have to pay your bills and part of that price increase pays for their increased cost you know people have higher hourly wage now there's more expenses for the business their cost of buying materials is higher and they price some of that into the cost of goods.

However most resellers or manufacturers have not completely put all their cost into the new price meaning that if their cost went up 50 percent they might have only increased prices 30 percent because they didn't want to put too much into the retail price increase to try to keep business figuring that they would have some volume to distribute their profit over their fixed expense well now that volume of sales is going lower that is backfiring.

So now you have the retailers even companies like walmart amazon came uh kmart they're gone and target are now finding they're having less sales even with prices being higher so their their revenue is not going to be enough to pay their expenses in fact there's already been some rumblings that the three cheap retailers target walmart amazon are gonna start cutting their expenses cutting employees cutting staff having less office space and retail space because they're not making enough sales to cover that.

Here's the other thing if inflation has gone up let's say 10 percent roughly and sales has gone down even two percent or even if sales sales stayed the same look at it this way if inflation went up 10 on prices and the sales for gdp was the same as it was before that means in actuality the volume of sales went down 10 percent because sales gdp is based on dollar volume based on dollar transactions so if the inflation rate made the dollar transactions be 10 percent more then sales should have went up ten percent just because of inflation and if it didn't that means sales are reducing already.

It doesn't bode well for next two three years is a recession here who knows main thing is start reserving capital and inflation will continue so if there's any major purchases coming up and you can afford it maybe put the money into that now so you can have a better return on your money look if inflation is going to be 10 buying something that you would purchase anyways gives you a 10 return on that money that might be better than you get in stocks let us know what you think.