In last month's elections, a congressman from Illinois took some heat for a video in which he was caught saying "a little inflation is a good thing."
He won re-election anyway, and good thing because to me he was correct. We're getting exactly what the food & beverage industry has wanted for some time, probably what we needed and what we at Food Processing have been writing about for a couple of years now.
After living through zero inflation because of the pandemic, it's easy to forget that the Federal Reserve long has had a target of 2% inflation. That's synonymous with modest growth. Any less and there's reason for concern. Deflation is really bad for the overall economy for a whole host of reasons.
The labor problem – both finding workers and retaining the ones you already have – in food & beverage plants was the cover story of our November issue. We explored a couple of solutions – you can probably guess what they were – but most came down to more money: higher pay to get workers in the door and more funds for training and advancement once they're in.
Some of the things a little inflation solves:
The (supposedly) razor-thin margins in food & beverage processing: There's nothing like a nightly news story on inflation in nearly all consumer categories to justify some price hikes. Shoppers have been conditioned to accept higher prices at the grocery store, which could mean higher margins for you and an inducement for the following...
Paying for "better" food: There have been countless reports in recent years that consumers want healthier, safer, better-quality foods, and they're willing to pay for them. That's what survey respondents have been saying, but their actions haven't always backed up their words. Nevertheless, food processors have improved their products, even before the pandemic and inflation, which usually meant more expensive ingredients. Now there's no need to wait for consumer validation of those efforts: Consumer are paying more, and those costs can be recouped.
A better standard of living for all: Most people feel sympathetic to the plight of less-educated family breadwinners working in fast food restaurants, grocery stores and other places for $7.25 an hour. And don’t forget that S in your ESG report. Between some states raising their minimum wages and the aforementioned labor shortage, $15 is pretty common now. So my Value Menu McChicken that used to cost $1 is now $1.25 – I can live with that.
And all that cash I had hidden under the mattress during the 0.4% CD rates is now getting invested at 4% or higher.
I’m writing this a couple of days ahead of the November consumer price index report, but indications are that inflation is moderating. In October, it slowed for the fourth month in a row, to 7.7%, the lowest since January, and below forecasts. And while lower energy costs were a big driver, even food was down (10.9% vs 11.2% in September).
All the food & beverage companies we've been reporting on lately have raised prices, and their improved bottom lines show it. I can't think of one that bemoaned inflation in a recent financial report and at the end reported lower sales and profits.
But I can't believe, for example, that costs increased 50% for Coke and Pepsi, two staples of my diet. I recall $1.99 being the list price for a 2-liter bottle; now it's $2.99. I always succeed in paying half of that.
Better wages, better food, even better margins – I can accept all those things. I just hope no one is abusing the privilege, because bad actions have a way of biting you in the behind. We write a lot about that, too.