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Tuesday, March 29, 2011

Product shifts lead to category shortages, inflation

Two stories in today’s New York Times help us understand a practice that is likely to drive food inflation, and another practice that is intended to disguise it.

With higher prices paid for cotton, more farmers are moving away from food production. Click here to see that story.

Next… it was about a year ago that I offered a post related to hidden inflation; prices remaining stable while package sizes were shrinking [see: Package Size Gap, April, 2010]. Well, the practice is apparently becoming even more wide-spread, according to another article published today. Click here to see that NY Times story.

Implications: Inflation is often a by-product of an economic recovery. Many companies suppressed their price increases during the recession (when consumers are most price-sensitive), and try to play a little catch-up during the recovery.

Now, it will be interesting to see how tolerant consumers will be as cost increases find their way to store shelves and dealership lots. It’s not a question of if, but when, really. And this recovery-related inflation is aggravated by increasing demand out of the growing economies of China, India and other parts of the world… as well as the product shortages that will result (especially for technology, automotive and specialty foods) in the aftermath of the catastrophes impacting Japan.

Will your products or services soon come with a higher price? Have you started talking with consumers about it, or are you simply hoping they don’t notice? Is it time to start that conversation?

Mike Anderson, for the Elm Street Economics consumer trends blog. A service of The Center for Sales Strategy, Inc.

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