In most economies, especially those going through a rebound, inflation (at some point) is a fact of life. Merchants, faced with the rising costs of inputs, whether raw materials or wages, tend to pass along at least some of those costs to their end consumers. Sticker shock sometimes results.
As had been reported on Tuesday (July 13), inflation (here, officially, the Consumer Price Index), as measured in June, quickened to its fastest pace in 13 years — up 5.4 percent — per data from the Labor Department. The Labor Department also reported that the core price index, which excludes food and energy, was up 4.5 percent from the previous year, where it had been estimated at 3.8 percent.
And as noted by The Wall Street Journal, sequential growth came in at 90 basis points. A significant tailwind to the inflation rate, representing about a third of the increase, came from prices paid for used cars and trucks, where prices were up 10.5 percent from the previous month.
The demand is there, obviously, on the part of end consumers. Bank earnings are just starting to come across the earnings transom, reflecting that comfort with spending across debit and credit channels. In one example, J.P. Morgan’s debit and credit card sales volume was up 45 percent and 19 percent sequentially.
Where there is more demand for goods that are limited in supply, prices rise. But that increased card usage also gives merchants the opportunity to tack on surcharges to cover interchange fees and other costs of card acceptance. Earlier this month, Colorado passed a law that allows merchants to levy surcharges (up to 2 percent of the cost) on consumers who use cards, rather than cash, to pay. As it stands now, only two states, Massachusetts and Connecticut, have surcharge bans in place. That means a majority of merchants in a majority of locations can presumably at least pass on the costs of transacting onto their end users.
But we’re already seeing some announcements about rising prices on some of the most ubiquitous consumer goods.
Passing On Some Input Costs
As CNBC reported, PepsiCo and Conagra Brands said they will pass along higher input costs to end users.
Earlier in the day, the Department of Labor reported that the consumer price index jumped 5.4 percent in June compared to a year ago, the biggest monthly gain since August 2008. Food prices rose 0.8 percent.
Conagra CEO Sean Connolly said prices will rise; Pepsi has said the same, eyeing costs tied to freight and labor.
Among the most basic costs for any firm would be fuel. Gas prices are at about $3.15 a gallon, the highest rate in about seven years, and around $1 higher than a year ago. Higher freight, logistics and last-mile costs may be pinching margins, especially for smaller merchants.
And the pressures may be exacerbated for the roughly 60 percent of consumers who are living paycheck to paycheck. As PYMNTS has found, 54 percent of consumers in the United States today live paycheck to paycheck, including 53 percent of those who earn $50,000 to $100,000 per year.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More