The Inevitable Rise of Inflation
"Inflation is the one form of taxation that can be imposed without legislation."
- Milton Friedman
It goes without saying that the pandemic has changed a lot. One of those changes that was not immediate, but at this point is seeming inevitable, is inflation. The two primary catalysts for inflation are:
1. Increased Demand
With consumers at home, they spent more money on things as opposed to experiences. This led to increased demand for goods instead of services. With increased demand and a fixed supply, this has led to increased pricing.
2. Quantitative Easing
Central Banks across the world printed money to keep liquidity in the market. This was a necessary evil that in turn lowered interest rates. Lower interest rates spurs further investing/ purchasing as saving becomes less desirable.
In normal circumstances, Central Banks could increase interest rates to combat inflation, however this is something economies across the world cannot necessarily handle the burden of at this time.
So what does this mean? It's a great question, and one that is very relevant to the subscription box industry. Put simply, it means that prices are rising. This is true for raw materials (such as lumber, stainless steel, and glass), as well as other services related to selling products (such as freight forwarding). In the broader new, there are a lot of discussions on gold, silver, lumber, etc. Each commodity is at or near all time highs. Year over year, copper and glass have doubled. Lumber is close to 4x higher than a year ago. Many of these commodities are ones used in the products we make every day. Below is a chart showing the price of lumber during the past year.
This is something that could affect box prices, or notebooks. What are my options? Rising prices ultimately end up being passed along to the consumer to some degree. The immediate options would be either lower profit margins or increased prices to end consumers. The fortunate news is that inflation affects everyone equally, and your competitors have the same decision to make. Generally increasing prices can result in lower demand, however with prices rising consistently across the board, that should not necessarily be the case. How We Can Help You? At Procuremint Inc., we do not hedge commodity prices, as it is unknown as to which commodities, and to which degree, our clients will be using going forward. However, we do hedge currency on a discretionary basis. The USD is generally negatively correlated to increases in commodity prices. As a result, as our competitors' buying power has been weakened, ours has remained more or less the same. What this means is that our pricing should vary less, as there are less factors that can affect overall pricing. Overall, inflation is on the rise and it generally starts with commodity prices. This is something that has to be considered in future pricing to consumers. Please feel free to reach out to your Account Manager to discuss any of this further. - Your Procuremint Team