Connect with us

Business

Inflation is cooling, but high prices will stick around

Published

on

A shopper checks out the egg section at the Publix at Winter Park Village, Tuesday, Jan. 17, 2023.

Joe Burbank | Orlando Sentinel | Tribune News Service | Getty Images

Inflation may be cooling. But, for most Americans, the price of a cup of coffee or a bag of groceries hasn’t budged.

In the months ahead, the big question is whether consumers will start to feel relief, too.

Over the past few months, many of the key factors that fueled a four-decade high in inflation have begun to fade. Shipping costs have dropped. Cotton, beef and other commodities have gotten cheaper. And shoppers found deeper discounts online and at malls during the holiday season, as retailers tried to clear through excess inventory. Consumer prices fell 0.1% in December compared with the prior month, according to the Labor Department. It marked the biggest monthly drop in nearly three years.

But cheaper freight and commodity costs won’t immediately trickle down to consumers, in part due to supplier contracts that set prices for months in advance.

Prices are still well above where they were a year ago. The headline consumer price index, which measures the cost of a wide variety of goods and services, is up 6.5% as of December, according to Labor Department data. Some price increases are eye-popping: The cost of large Grade A eggs has more than doubled, while the price tags for cereal and bakery products have climbed 16.1%.

“There are some prices, some goods for which prices are falling,” said Mark Zandi, chief economist of Moody’s Analytics. “But broadly, prices aren’t falling. It’s just that the rate of increase is slowing.”

Retailers, restaurants, airlines and other companies are deciding whether to pass on price cuts or impress investors with improved profit margins. Consumers are getting pickier about spending. And economists are weighing whether the U.S. will enter a recession this year.

Sticky contracts, higher wages

During the early days of the Covid pandemic, Americans went on spending sprees at the same time that factories and ports shuttered temporarily. Containers clogged up ports. Stores and warehouses struggled with out-of-stock merchandise.

That surge in demand and limited supply contributed to higher prices.

Now, those factors have started to reverse. As Americans feel the pinch of inflation and spend on other priorities such as commutes, trips and dining out, they have bought less stuff.

Freight costs and container costs have eased, bringing down prices along the rest of the supply chain. The cost for a long-distance truckload was up 4% in December compared with the year-ago period, but down nearly 8% from March’s record high, according to Labor Department data.

The cost of a 40-foot shipping container has fallen 80% below the peak of $10,377 in September 2021 to $2,079 as of mid-January, according to the World Container Index of Drewry, a supply chain advisory firm. But it is still higher than prepandemic rates.

Food and clothing materials have become cheaper. Wholesale beef prices dropped 15.6% in November compared with a year ago, but are still historically elevated, according to the U.S. Department of Agriculture. Coffee beans fell 19.7% in the same time, according to the International Coffee Organization’s composite global price. Raw cotton’s cost plunged 23.8%, according to Labor Department data.

However, to protect against unpredictable spikes in prices, many companies have long-term contracts that set the prices they pay to operate their businesses months in advance, from buying ingredients to moving goods across the world.

For example, Chuy’s Tex Mex locked in prices for fajita beef that are lower than what the chain paid last year, and it plans to also lock in prices for ground beef during the third quarter. But diners will likely still pay higher menu prices than they were last year.

Chuy’s plans to raise prices about 3% to 3.5% in February, although it has no more price hikes planned for later this year due to its conservative pricing strategy. The chain’s prices are up about 7% compared with the year-ago period, trailing the overall restaurant industry’s price hikes.

Similarly, coffee drinkers are unlikely to see a drop in their latte and cold brew prices this year. Dutch Bros. Coffee CEO Joth Ricci told CNBC that most coffee businesses hedge their prices six to 12 months in advance. He predicts coffee chains’ pricing could stabilize as early as the middle of 2023 and as late as the end of 2024.

Supplier contracts aren’t the only reason for sticky prices. Labor has gotten more expensive for businesses that need plenty of workers but have struggled to find them. Restaurants, nail salons, hotels and doctors’ offices will still reckon with the cost of higher wages, Moody’s Zandi said.

A shortage of airplane pilots is among the factors that will likely keep airfares more expensive this year. The price of airline tickets have dropped in recent months but are still up nearly 30% from last year, according to the most recent federal data.

However, Zandi said, if the job market remains strong, inflation eases and wages grow, Americans can better manage higher prices for airfare and other items.

Annual hourly earnings have risen by 4.6% over the past year, according to the Bureau of Labor Statistics — not as high as the consumer price index’s growth in December.

Yet in some categories, softening demand has translated to price relief. Several hot pandemic items, including TVs, computers, sporting goods and major appliances have dropped in price, according to Labor Department data from December.

Budget pressures for families

Top retail executives said they expect families’ budgets will still be under pressure in the year ahead.

At least two grocery executives, Kroger CEO Rodney McMullen and Sprouts Farmers Market CEO Jack Sinclair, said they do not expect food prices to drop anytime soon.

“The increase is starting to moderate a little bit,” said McMullen. “That doesn’t mean you’re going to start seeing deflation. We would expect to see inflation in the first half of the year. Second half of the year would be meaningfully lower.”

He said there are some exceptions. Eggs, for example, will likely become cheaper as as Avian flu outbreak recedes.

Over the past two years, consumer packaged goods companies have raised prices of items on Kroger’s shelves or reduced packaging sizing, a strategy known as “shrinkflation.” McMullen said none have come back to the grocer to lower prices or step up discounting levels from a year ago. Some are keeping aggressive prices, as they play catch-up after margins got squeezed earlier in the pandemic or as they sacrifice volume for profits, he said.

At Procter & Gamble, for example, executives plan to increase prices again in February. Prices on P&G’s consumer staples like Pampers diapers and Bounty paper towels have climbed 10% compared with the year earlier, while demand slipped 6% in its latest quarter.

In other cases, companies are still dealing with factors that contributed to inflation. For example, farmers are raising cows, but have fewer than before the pandemic, and grains and corn are less plentiful as the war in Ukraine continues, according to McMullen.

“If before you were spending $80 and now you’re spending $90 [on groceries], I think you’re going to be spending $90 for awhile,” he said. “I don’t think it’s going to go back to $80.”

Utz Brands CEO Dylan Lissette echoed that sentiment back in August, telling investors that list prices usually don’t fall even when costs come down.

“We don’t take something that was $1, move it to $1.10 and then a year or two later, move it to $1,” he said.

Instead, food companies such as Utz typically offer steeper and more frequent discounts to customers as costs drop, according to Lissette, who was once in charge of pricing Utz’s pretzels and kettle chips.

Over the next few years, companies may reverse “shrinkflation” packaging changes that result in cheaper snacks on a per ounce basis. And two or three years after that, shoppers may see the introduction of new value pack sizes, Lissette said.

Retailers’ ace in the hole

Source link

Business

Budget 2023 new income tax slabs: How to calculate your tax

Published

on

In a big relief for the middle class, finance minister Nirmala Sitharaman on Wednesday announced five income tax measures in the last full budget of the government before the 2024 Lok Sabha elections. With the new announcements, calculations for your income tax will change. Follow LIVE updates

Watch: Budget 2023: Big relief for taxpayers ; No tax for income up to 7 lakh | Check revised rates here

Here is all you need to know:

1. People earning up to 7 lakh annually will not pay any income tax in the new tax regime as the personal income tax rebate limit has been increased to 7 lakh from 5 lakh.

Union Budget 2023-24: What’s cheaper and what’s costlier? Here is the full list

2. New income tax slabs:

A look at the tax slabs under new versus old regime.

Budget 2023: Full coverage

3. New regime vs old regime

The new income tax regime will be the default tax regime while the citizens will have the option to be in the old regime as well, the finance minister announced. Old tax regime allows PPF, NPS and some other concessions. So people above the 7 lakh annual income will have to judiciously choose between the new and old regimes. The benefits of the standard deduction has been introduced to the new regime.

4. Calculation: How much do you save?

An individual with 9 lakh annual income will pay 45,000 tax which is 5% of the salary — a reduction of 15,000 from the present 60,000. A person with 15 lakh annual income will have to pay a tax of 1.5 lakh down from 1.87 lakh.

5. Highest income surcharge reduced from 37% to 25%. “The Current tax rate in the country is 42.74%, among the highest in world. Budget23 proposes to reduce the highest surcharge rate from 37% to 25% in the new tax regime. This will result in the reduction of the maximum tax rate to 39%,” Sitharaman announced.

6. The limit of 3 lakh for tax exemption on Leave Encashment limit raised to 25 lakh.

7. Individuals with income of 15.5 lakh and above have been made eligible for astandard deduction of 52,500 in thenew tax regime in Budget 2023.

Source link

Continue Reading

Business

Budget 2023: ‘India has made significant progress in many SDGs’, says FM

Published

on

India has made significant progress in many sustainable development goals (SDGs) and the per capita income has increased to 1.97 lakh, finance minister Nirmala Sitharaman said on Wednesday.

She also said that the Indian economy has increased in size from being 10th to fifth largest in the last nine years.

The efforts of the government since 2014 have ensured better quality of life for citizens of the country, Sitharaman added.

Also read: Sitharaman outlines 7 priorities of Budget 2023, calls them ‘Saptrishi’

According to the Centre for Science and Environment’s State of India’s Environment Report, 2022, India’s overall Sustainable Development Goals (SDG) score was 66 out of 100.

The 2030 agenda for sustainable development was adopted by all United Nations member states in 2015, which provides a shared blueprint for peace and prosperity for people and the planet.

There are 17 sustainable development goals which are an urgent call for action by all countries in a global partnership.

Also read: From LPG rates to car prices, here’s what’s changing from day of Union Budget

Some of these goals are no poverty, zero hunger, good health and wellbeing, quality education, gender equality, clean water and sanitation, affordable and clean energy, decent work and economic growth, industry, innovation and infrastructure.

It also includes, reduced inequalities, sustainable cities and communities, responsible consumption and production, climate action, life below water, life on land, peace, justice and strong institutions and lastly strengthening global partnerships for the goal.

Source link

Continue Reading

Business

Peloton CEO Barry McCarthy doesn’t care Bikes, Treads lose money

Published

on

Barry McCarthy speaks during an interview with CNBC on floor of the New York Stock Exchange (NYSE), October 28, 2019.

Brendan McDermid | Reuters

Peloton CEO Barry McCarthy told investors Wednesday he doesn’t care that the company is losing money on its Bike, Tread and Row equipment. The business’s “path to the promise land,” he said, is its mobile app. 

Peloton posted negative margins during the holiday quarter for its pricey connected fitness products, but McCarthy said he’s more concerned with aggregate margins, which were in the positive thanks to the company’s subscription revenue. 

“We take a holistic view of the revenue stream and the expenses associated with both the hardware and the subscription associated with it. So from my part, I don’t particularly care about the hardware margin,” McCarthy said during the company’s earnings call. 

“I care about it on an aggregate basis, and I care about the relationship between the lifetime value of the customer relative to the cost of acquisition,” he said.

In Peloton’s fiscal second quarter 2023, ended Dec. 31, the exercise equipment company lost $42.8 million on its connected fitness products, bringing the division’s gross margin to negative 11.2%. 

The company’s overall gross margin of 29.7% was kept afloat by the $277.9 million Peloton made from its subscription business, at a margin of 67.6%. 

While subscription revenue was effectively flat quarter over quarter, it exceeded sales from Peloton’s connected fitness products for the third quarter in a row. McCarthy told CNBC it signals a possible “turning point” for the company. 

When asked about how the app, which features on-demand workout classes from the company’s pseudo-celebrity instructors, fits into the exercise equipment company’s overall strategy, McCarthy said his primary goal is to expand Peloton’s total market share by reaching a user base that it hasn’t been able to access before.

The cost of the app, which doesn’t require any Peloton equipment, is $12.99 per month compared with the $44 monthly cost for the company’s all-access membership that can be used on its connected fitness equipment. 

“I think of it as its own end game,” McCarthy said. 

Source link

Continue Reading

Trending

%d bloggers like this: