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Self-fulfilling prophecy: Who is comfortable talking about rising prices?
Recently, fears of high inflation have been rising - but not everyone is equally deterred by the issue.
Consumers may pay more and interest rates may rise - but food manufacturers who have seen price stability so far can actually be satisfied
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inflation
Food prices
Avichai Snir
Friday, 23 April 2021, 02:06 Updated: 02:27
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Will prices go up?
Money (Photo: ShutterStock)
Talk of inflation always puts investors under pressure.
Because inflation brings with it harm to consumers who are forced to pay higher prices, and risk of rising interest rates, a significant problem in a world where a large proportion of businesses are leveraged to the limit, and sometimes even beyond.
But the truth is that there may be some who benefit greatly from talking about inflation.
The public may think the social protest has failed, but Figure 1 showing the indices of food prices (including vegetables and fruits), clothing and footwear, and furniture since 1999, tells a different story.
Furniture and clothing prices have been falling for more than twenty years.
Food prices climbed rapidly from 1999 until the social protest in 2011. After the protest, food prices continued to rise for a while, but when manufacturers saw the negative publicity they received, along with the decline in consumption, price increases were halted.
In fact, although the prices of vegetables and fruits have risen, overall there is almost no difference between the level of food prices in 2021 and 2013.
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To the full article
Indices of prices of clothing and footwear, furniture, and food, including vegetables and fruits (Photo: CBS)
Recently I have seen how much the stability in food prices is bothering the manufacturers.
I was at a conference where we discussed the issue of food prices.
The representative of the food manufacturers admitted that the food prices are high, but claimed that it is not the fault of the manufacturers.
In an attempt to show how irresponsible manufacturers are for high food prices, he has shown the rise in wages in recent years, arguing that not only are food manufacturers not responsible for high food prices, but they even absorb the increase in costs to keep prices as low as possible.
I wanted to ask the representative what was the profit of the food manufacturers in 2013 if they are able to absorb at least a 10% increase in costs without raising prices.
Unfortunately, it did not come out.
Unlike the manufacturers' representative, I do not believe that food manufacturers and marketers keep prices low out of concern for the well-being of consumers.
But I do believe that their profits have eroded compared to the peak several years ago.
Which leads me to the conclusion that talk of the kind that is heard a lot about the possibility of inflation coming back to us, is exactly what manufacturers in Israel need.
There is nothing like talking about inflation to prepare the ground for price increases.
But there is NIS 750 from Netanyahu
What's more, the talk of inflation is not just talk of inflation: there is talk of rising commodity, oil, and transportation prices. There is even talk of changes in consumption habits in China, which causes China to divert more products to consumption within China and less to exports, which could lead to an increase in the prices of products coming from there. Exactly the factors that can explain increases in the prices of food products, clothing and furniture.
When it comes to a time when a large proportion of consumers were able to save last year more than usual because closures reduced their spending, manufacturers certainly have an opportunity to roll some of the increase in costs they have absorbed in previous years into price increases. Therefore, I will not be surprised at all if for food manufacturers and importers, clothing and furniture, 2021 will be a great year. As an investor, this means that shares of food manufacturers and importers are not a bad investment. But as a consumer, it tells me that I may need the 750 shekels that Netanyahu gave me and that I have managed to save so far.
Dr. Avichai Snir - Netanya Academy and Bar-Ilan University
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