Target And Walmart Telling Us About Inflation

The last year has been very difficult for people. We saw the CPI, PPI, and PCE all skyrocket. There are prints that we haven't seen in 40 years. This has everyone focusing upon the Fed, look to it for solutions.

Unfortunately, for those looking to the Fed for a solution, they did not cause this problem. This is not a monetary dilemma but a supply side shock. We know global supply chains are completely disrupted.

Of course, the latest lockdowns in China are only going to set some industries back even more. This is probably going to push us closer to recession.

Not to be outdone, the Fed openly stated it is going to attack what it can: the demand side of the equation. This means pushing the economy down even further. Sadly, this is coming at a time when the headwinds are starting to become clear.

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The Solution To Higher Prices

This is a topic we were discussing since the end of last year. The solution for higher price is higher prices. What this means is people start to alter their behavior as a result of the price adjustments they have to endure.

It is a point that was validated by both WalMart and Target. Both companies noticed a change in consumer buying patterns. The video with the Target CEO sums it all up.

These companies are forecasting what is coming in many other areas of the economy. As people have to pay higher prices for necessities, discretionary spending starts to get hit. For retailers, that means the higher margin items are passed by in favor of lower cost alternatives. People also forgo purchases altogether if possible.

This is a concept as old as the hills. Even since the first economic transaction, whenever prices started to affect the money someone had to spent, different choices were made.

Ultimately, this affects demand. When people start to pull back, in this case on discretionary items, that means those sectors start to take a hit. Guess what starts to come next as their sales slow: layoffs.

It is at this point that we start to see things get turned upside down.

Demand Destruction Is A Process

If the demand destruction is already starting, it tends to spread like wildfire. The challenge the Fed has is it is playing this situation like it was a monetary one. If that were the case, the price increase would be across all products and services, remain consistent, and extend over a long period of time (years). The fact that we are seeing holes in the armor means it is something else.

Another problem with this is the fact that many economists, especially those at the Fed, are worried about a wage price spiral. The idea here is that companies pass along higher prices meaning consumers have to earn more to make up for it. Thus, they get wage increases which gives them more money to spend, pushing up prices that companies charge.

Rinse and repeat.

Once again, this is not happening. Throughout I detailed how the PPI and CPI were increasing at different rates. This alone shows that producers were not able to pass on all the raw material costs to consumers. Here we see a break in the cycle right off the bat.

At the same time, the fact that inventories were increasing since last November shows there were demand issues. Ultimately, when inventory exceeds demand, sellers (whether retail or wholesale) have to start cutting prices to try and move the inventory. This, too, serves to reverse the cycle.

The process from inflation-to-disinflation-to-deflation is a process. However, the acceleration occurs once the disinflation peak is hit. From there, it tends to be a forceful reversal.

Oil Producers Are Saying The Same Thing

Target and Walmart are only echoing what the oil producers were saying for the last few years.

As the price of oil shot up, the CAPEX from these companies has not. Why is that? The answer is fairly simple: the oil companies expect things to shift again in the future. They are not about to drop billions into expanding oil production to find demand dries up.

This is a situation they found themselves in 2013 and 2018. Fool them twice and they will take their lumps. The rhetoric is not going to lure them in a third time.

Anyone with any sense knows that these companies would love to pump as much oil as they can at $100 a barrel. However, if they do not believe it is going to last, their is no way they are going to shell out billions only to have to plug holes and write off debt.

For all those who believe the reversal to deflation is a good thing, perhaps it best to look at the most prolonged deflationary period in US history. Read about how life was in the Great Depression. It wasn't exactly a wonderful time and life was not very easy.

Then again, welcome to a time of deflationary money.

Be aware of the times ahead. It is crucial.


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I think they already said things are bad and they can't pass all of the increased costs to the customer because it would remove any advantage they have over small stores. That itself already tells you that people can't keep up with the prices as they are right now.

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Apparently, the time of large supermarkets has come to its end.

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I don't think it means that they end but their pricing advantage compared to small stores will end.

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I can see big stores starting to close. Realization with a shortage of goods will not allow closing current expenses in positive territory.

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The idea that full costs were being passed on was foolish. For 6 months, the PPI and CPI did not match. It was evident input costs were exceeding output.

This will eventually echo through the economy. Somewhere along the line we see someone put their foot down. In this case, it is the consumer (end user) who is saying no to much of the discretionary spending.

It is going to affect those industries in a big way. This is where we see the next phase, layoffs start.

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The fed is just taking any chance they have to try to reduce that balance sheet. THey've been claiming for years its all about getting that inflation up there. I think they realize a controlled recession is better than one that isn't. Of course the problem is the hubris that assumes a recession could be controlled by the fed instead of just being caused by them.

I'm pretty sure we are already in a recession. In a couple years when the governments of the world finalize their economic numbers from today, we'll see the headline that the recession actually started in February or something. The question now is just how much worse is it going to get?

I also think they believe they can force everyone back to work by cracking the stock market in half. Get all those influencers and new small business people to go crawling back to the job. Full employment whether thats making sure companies are offering jobs or making sure people are poor enough to take any job being offered. It's the mandate either way.

If supply chains suddenly come back, we're going to have a glut of inventory in a hurry, then deflation, and then a race to create easy money policy again.

Right about the time everyone sells all their assets at a huge loss it will all turn around. Always does.

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Soon we'll be driving straight to farmers' houses for groceries, supermarkets will die out like dinosaurs.

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The Fed isnt in control anyway.

And for their talk about reducing demand, it is already in operation. These numbers are from Q1, before the Fed even raised the rates.

Plus, the bond market is what drives the Fed, not the other way around. It will tell us when Fed policy is failed, which is it. The Fed was right with their initial claim that inflation was transitory (people need to understand what that means and the timeframe). Of course, they turned political now and are backed into another corner (they put themselves there).

So I predict there will be a reversal by the end of the year. The Fed is going to realize the mistake it made.

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I 100% agree with everything you just said here.

The only thing tightening does here is hurt the people who run out of money first. They are dealing with discretionary spending which at this point we need so we can keep jobs through the downturn and minimize damage. The more people who can afford to spend into these months of inflation, the better for everyone. Disincentivizing those who have the funds and are willing to spend them into the economy is dangerous and irresponsible.

I think the fed is always backed into a corner now. They've been backed into a corner for over a decade now if not longer. Just keep praying there's something else to financialize until the economy finds a way to grow again before one of these market manias does real damage. The digital economy is the only way out imo

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for all that you count the coming recession is strong there are many factors that could affect world economies. To combat it, we must buy enough and not spend our money improperly, that is, we have to be very aware of all daily, weekly and monthly expenses.

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I live on a slightly different planet, where there is no desire to find out that last month I lived better than this month)

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the logical thing is to live day by day and what has already been done is in the past and now all that remains is to look forward

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This is what I thought and what I follow. The calculations do not show the correct picture due to the rapid rise in prices. a taxi ride cost 0.25 dollars, in a week it will already cost 0.48 dollars, I bought potatoes for about 0.2 dollars, now, because of the price of gasoline, 0.35 dollars per kilogram. And so, in practice, there is a very large error in everything and, apart from wasting time, cost calculations do not show a picture that can be oriented in the future.

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All this suggests that we need as much Hive as possible. in order to cover all the differences in costs, one fine day, we will not care how much milk or bread costs in the store, I believe in this and rely on the current line of behavior in everyday life.

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It appears risk off hits Hive also so I am not sure it is a safe haven. However, if things do run, we could see that helping people.

Hard to tell where crypto fits in at this point since there are many variables. Hopefully it will clear up in the future.

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I would not say that now, for the Hive, is a bad time, it's just that everything is commensurate. Those who are used to the price of 18 cents will not understand the one who, for the first time, saw the Hive for $ 3).
In the real world, there are no less variables now, you cannot rely on the salary bar, since it is not tied to the dollar, and the one who felt quite decent, receiving 15,000 UAH, today, having paid utility bills, and possibly rent, understands that life is not so simple.

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