This surge in inflation will soon be history — because companies will sacrifice profit for market share

MarketWatch2021-07-14

Market share trumps pricing power. Inflationsurged in June, but it is now at or near its peak for this cycle. What will determine the path of consumer-price inflation from this point on is how ...

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Comments

Asta168
2021-07-15
Asta168
Can it be true that companies will sacrifice their profit?
Dman5
2021-07-14
Dman5
True inflation should go down so
Jasminephyo
2021-07-14
Jasminephyo
Ok
DLIM
2021-07-14
DLIM
Good information
HandsomeLee
2021-07-14
HandsomeLee
Good article
CWL711
2021-07-14
CWL711
Ok, like please thank you

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Paying higher wages to attract new workers and retain current employees does raise operating expenses. So does spending more on key commodities. The temptation therefore to pass those higher costs on to customers is strong.\nCalculated risk\nBut it is also a calculated risk. There is always the fear that longtime clients will walk away and instead do business with a competitor who suddenly sees an opportunity to stand out from the pack by dropping prices. And if there is one painful lesson companies of all sizes have learned it is that once you lose market share, it is hellishly difficult and expensive to get it back.\nWhat June’s 0.9% jump in the consumer price index tells us is that most businesses found their operating expenses increased way too much and way too quickly to simply be absorbed. They had to make up for those shrinking margins by charging consumers more.\nAgain, it’s a calculated risk and probably a safe one…for now! After all, households are flush with cash and eager to spend, and that means Americans are less likely to be price sensitive at this time. We haven’t seen such pricing power in decades. Inflation has risen by 5.4% over the past 12 months, the fastest gain since the summer of 2008, with core CPI up a sharp 4.5%, the most since 1991.\nSo long as pricing power doesn’t threaten market share, inflation will continue to creep higher. But history has shown this cannot last long. Price competition will re-emerge in the second half of the year and more vigorously in 2022 and that should soften inflation pressures. Here’s why.\nHere’s why inflation has peaked\nFirst, as Washington transitions from fiscal stimulus to fiscal restraint, we expect to see household consumption ease accordingly.\nSecond, the enormous buildup in pent-up demand by consumers over the past year provided the economy with much forward momentum. But as demand is being satisfied, this spending drive will lose momentum.\nThird, there is little doubt the Federal Reserve is gearing up to scale back purchases of mortgage-backed securities and Treasuries. Whether it begins to taper quantitative easing at the end of this year or early next, once they do, the cost of borrowing will increase. That will slow both home sales and capital investments.\nFourth, the supply-chain bottlenecks of the first half have begun to ease. Cargo ships are being unloaded at a faster pace, especially on the West Coast. This improvement in logistics sets the stage for the price of commodities and finished goods to drift lower.\nFinally, and I say this will some reluctance, as much as we wish to declare victory over the COVID-19 virus, it would be premature to do so. The appearance of new variants (Delta, Delta plus and now Lambda) in the U.S., combined with the challenge of getting 70% to 80% of the U.S. population fully vaccinated (the figure is only 48% as of today, according to the CDC) raises the specter of another wave of infections in the fall and winter. That, too, could also take some wind out of the economy.\nOur assessment is we are near the peak in the inflation cycle and most voting members on the Federal Open Market Committee share this general sentiment. The forces that drive price competition and bring down retail prices are bound to emerge as consumers seek out more deals and as firms refocus on locking in, if not expanding, their market share.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":144262639,"gmtCreate":1626301685921,"gmtModify":1703757278882,"author":{"id":"4087253710063360","authorId":"4087253710063360","name":"Asta168","avatar":"https://static.tigerbbs.com/0374ed79dc30b8943141ee9dcb8ed63b","vip":1,"crmLevel":1,"crmLevelSwitch":0},"htmlText":"Can it be true that companies will sacrifice their profit?","listText":"Can it be true that companies will sacrifice their profit?","text":"Can it be true that companies will sacrifice their profit?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/144262639","repostId":1148011457,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":144303352,"gmtCreate":1626265580876,"gmtModify":1703756626409,"author":{"id":"4087270895708000","authorId":"4087270895708000","name":"Dman5","avatar":"https://static.tigerbbs.com/b3922d758264ca03a649cb6eec0180c9","vip":1,"hat":"https://static.tigerbbs.com/f84d87792f02cf78e80ee34979fd31e5","crmLevel":6,"crmLevelSwitch":1},"htmlText":"True inflation should go down so","listText":"True inflation should go down so","text":"True inflation should go down so","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/144303352","repostId":1148011457,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":144902879,"gmtCreate":1626258339191,"gmtModify":1703756491173,"author":{"id":"3585306064379170","authorId":"3585306064379170","name":"Jasminephyo","avatar":"https://static.tigerbbs.com/81aad6a5797d9f136f0438609cb372a5","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/144902879","repostId":1148011457,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":144061550,"gmtCreate":1626254207670,"gmtModify":1703756415146,"author":{"id":"3583811401087980","authorId":"3583811401087980","name":"DLIM","avatar":"https://static.tigerbbs.com/140bf807c414ea069de5f87b2b1509cd","vip":1,"crmLevel":6,"crmLevelSwitch":1},"htmlText":"Good information","listText":"Good information","text":"Good information","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/144061550","repostId":1148011457,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":145779647,"gmtCreate":1626250176889,"gmtModify":1703756327233,"author":{"id":"3555582753204069","authorId":"3555582753204069","name":"HandsomeLee","avatar":"https://static.tigerbbs.com/b3b95e103d2bfb2320b61f131b0868df","vip":1,"crmLevel":5,"crmLevelSwitch":1},"htmlText":"Good article","listText":"Good article","text":"Good article","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/145779647","repostId":1148011457,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":145770480,"gmtCreate":1626250145740,"gmtModify":1703756326740,"author":{"id":"3579262958727025","authorId":"3579262958727025","name":"CWL711","avatar":"https://static.tigerbbs.com/982058e5cb33e9069dbb2ca28d3fc46e","vip":1,"crmLevel":1,"crmLevelSwitch":0},"htmlText":"Ok, like please thank you","listText":"Ok, like please thank you","text":"Ok, like please thank you","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/145770480","repostId":1148011457,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":282,"commentSize":37,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; 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