CPI, PPI and the Euro…
Inflation – again…
OK, I’ll start with the obvious and get it out of the way: Inflation is now at 9.1%. That is the CPI, or consumer price index for you economics folks.
Good news, bad news.
Good news: consumers are still holding cash, allowing them to continue to spend.
Bad news: consumer confidence is falling, making them a little more tight-fisted.
The measurement of consumer sentiment is right back down where it was during the 2008-09 recession. That could be a problem.
And yes, food and energy costs led the increase.
And what is the cousin to the CPI? The PPI – Producer Price Index.
The PPI is the measurement of the cost of doing business as a business.
In other words, it measures the cost to put together the finished product that consumers buy.
That increased 11.3%.
Good news, bad news.
Good news: the core PPI (not including energy costs) actually decreased, possible signaling an easing of supply chain issues.
Bad news: Energy costs are really soaking businesses.
As long as energy costs remain high, inflation is going to be a problem.
So, what isn’t increasing (a lot) in price? Prescription drugs.
Prescription medicine rose 0.1% in June and 2.5% in the last year.
Evidently not a supply chain issue there.
This is less than non-prescription drugs, or over-the-counter medications that increased 4.7% in the last year.
Health insurance was up 17.3%. Ouch.
The Euro
Sounds more like a sensible sedan than the currency of most of Europe (except for the Brits).
So what? Well, for the first time since 2002, the Euro was below a 1 to 1 parity. In other words, it was 0.98 Euros for every 1 US dollar.
To put that into perspective, back in 2008, if you went to Europe, it cost $1.57 to buy 1 Euro. So a meal at McDonalds in Germany that cost 25 Euros ended up costing $39.25 US dollars. Don’t ask how I know.
In 2008, that was a lot for four combo meals.
So what, you still say?
It’s a great time to travel there – your US dollar buys you a lot more than it did even a few years ago.
The bad news is that Europe’s airlines are even more messed up than here.
The price of European goods is significantly cheaper now. An example:
If the price of an item in Europe is 1000 Euros, then in 2018, it would have cost $1,250 (the exchange rate was 1.25 US Dollars for every Euro), assuming no tariffs and import taxes etc.
Now, it’s $1000, a 20% reduction in price.
So technically, the price of a Mercedes made in Germany and imported to the US, should be dropping (unless it was made in Tuscaloosa, Alabama, where they make a lot of Mercedes SUVs).
So, if your business imports European cheese (or European whatever), the foreign exchange rate of the Euro is very favorable.
That means that instead of paying $1.25 for a Euro, you are paying $1. Unless your vendor is billing you in dollars. That really works in their favor.
Pro Tip – Have your vendors quote you in Euros and then talk to your bank about converting US Dollars to Euros and then arranging to get that wire to Europe. You’ll be pleased at how much money you will save.
I guess I should have led with that.
Keeping Employees
In the last Report, I said I would discuss the importance of the first 90 days of employment, assuming they even show up for the first day.
I will still do that, but not this week. Stay tuned! Scouts honor.
Summer is flying by – enjoy it!
