Wednesday, March 2, 2011

Fed Confirms Screwflation

MarketWatch headline: Businesses getting pricing power, Fed survey finds.

From the innards of the piece:

WASHINGTON (MarketWatch) — Some manufacturers and retailers are finding that they can raise their prices, which is one key pre-condition for inflation to take hold, according to the Federal Reserve’s latest Beige Book survey of economic conditions released Wednesday.

“Manufacturers in many districts conveyed that they were passing through higher input costs to customers or planned to do so in the near future,” the survey found.

Meanwhile, “retailers in some districts mentioned that they had implemented price increases or were anticipating such action in the next few months,” the report said.

Firms have been reporting higher prices for input prices for months but have always said they have been unable to raise prices for fear of losing market share.

The ability of firms to pass along higher costs will be a matter of concern for Fed officials.

But the central bankers will draw some comfort because wages are not rising. Wages are another key inflation ingredient.
Oh, I get it.  Prices are rising, while wages are flat.  And that's a good thing?   Doesn't that just mean shifting aggregate demand, i.e., GDP, not growing it?  And as higher input prices for consumer staples get passed onto consumers, doesn't that mean they will engage in less discretionary spending?  And doesn't that mean that there will be less demand for consumer discretionary goods?  And won't that mean more layoffs in consumer discretionary goods and services?

And this is a good thing?

If even the Fed will today accept that price inflation due to increased input prices caused by speculation in commodities, then we need to go back and rethink the cause of the 1970s stagflation.  I'm sure that we'll find it wasn't the American worker or union wages, but financial terrorists, just like it is today.