Prices…prices…prices. Everyone’s complaining. A dozen eggs go for nearly $5. A gallon of gas is over $4. A cup of coffee soaks you for more than $3.
I could talk about capitalism, prime interest rates, and the free enterprise system but I would just bore you. Instead of going on about complex formulas, I think the one factor in the high-price story that makes the most sense to me is the principle of supply and demand. When supply is high and demand is low, prices are low. When supply is low and demand is high, prices are high. Seems like a simple enough equation.
After Covid, (I’m sure everyone remembers that with a shiver) demand was high but supply was low due to the global shutdown of many industries. Once the Covid crisis passed, and the US government pumped a trillion dollars into the economy, businesses scrambled to bring workers back and get the economic engine running again. In other words, the supply of workers was low while the demand for them was high.
That meant salaries and benefits had to be increased as an incentive to return to work. Of course, we all know who ultimately pays the price to cover a business’s salary overhead. You’re right – you and me.
The price of goods and services jumped because of wage hikes and supply shortages. Then events outside of anyone’s control such as the bird flu which killed millions of chickens and the drought which forced cattle ranchers to cull their herds. I didn’t even mention the Russian invasion of Ukraine which blew up the price of oil.
Then, to prevent inflation from going crazy, interest rates rose which made it harder for businesses to borrow money, and consumers from getting necessities such as home mortgages, which crippled home sales.
Then there’s the investor factor. A business can’t survive without investors, whether personal or institutional However, an investor only invests when they can see, and can expect, a reasonable Return On Investment or ROI but to deliver that ROI a company has to be able to cover their costs.
You might be saying to yourself, “What does all this mean? I’m not an investor.” Before you jump to that conclusion, think about this:
If you contribute to a pension fund, you’re an investor.
If you pay insurance premiums, you’re an investor.
If you put money in a mutual fund, you’re an investor.
If you do business with a commercial bank, you’re an investor.
If you donate to a non-profit institution or organization, you’re an investor.
And as an investor, you expect a decent Return On Investment, whether it’s in the form of money, service, or just making life a little better for someone else.
So why are prices so high? Maybe I’m being too simplistic but post-Covid we were living through a phase of low supply/high demand. Today, even though it looks like the supply bottleneck is loosening, we’re not out of the woods yet. As a wise man once told me, “When you walk 20 miles into the woods, you have to walk 20 miles out.”
I’m going to keep walking. I hope you do as well and don’t get sucked into the swamp of doomsayers, gloom-mongers, and the bleating chaos chorus.
Know what? I’m going to go out and buy something. Have a nice ROI.
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