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(snip)General Mills came out Wednesday with their Q3 earnings, and what do you suppose was one of the top points they wanted to make to their investors? Just that they were experiencing significantly higher input costs year-over-year.
As a matter of fact, they say that YOY inflation input costs were actually higher by 2% 3% 5% 8% ...
10%-11%
So is it deflationary for the consumer if the 3rd biggest food company in America is experiencing double digit inflation?
But then again what do I know, I'm just a contributor to a blog. And I don't even have a Phd.(snip)
The major take-away from this official statement relates to a point already raised in other Dollar Den threads. That point is that commodity price increases which have already occurred in US dollar terms are usually not immediately passed on to consumers. With the exception of near-commodity items like gasoline, most commodity price increases first hit industries who process those commodities as an 'input' towards the production of some other product or service. And those industries are simply unable to recoup their higher commodity price based 'input' costs due to competitive market pressures. This in turn translates into lower profitability for those industries, lower stock values and dividends for their stockholders, lower / no expansion or job creation etc. Based on this official statement, General Mills has now reached that point. Undoubtedly, many other businesses and industries, from pizza parlors to automakers, are also experiencing the same rising 'input' costs thus profit margin reduction.
Ultimately, profit margin reduction due to rising commodity prices will force these businesses and industries to either increase retail prices ( and hope this doesn't cause a major drop in market share ), or reduce non-commodity based 'input' costs in other ways ( for example, by trading expensive US labor for cheap foreign labor ) to offset commodity based 'input' cost increases, or to go out of business due to lack of a 'sustainable' profitability level. But, one way or another, this will translate into higher US dollar denominated retail price levels or additional losses of US jobs, or both.




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