Let’s not pretend that as small business owners and employees we don’t have to eat, drive cars or heat our homes. Rising prices hurt us because we are people … consumers … above all else.
But as businesspeople, the situation can be even worse if you happen to be in one of those businesses that use the commodities and materials experiencing record-high prices right now.
Think of food (restaurants); gasoline (businesses with fleets and delivery vehicles); and high heating costs (landlords and real-estate related businesses).
I had asked the question last week whether inflation was the real worry, rather than recession. But after digging into the question a little further, it appears that the question of high prices is more complex than simply inflation.
Last night I attended the Charles Schwab Town Hall meeting, and heard Chief Investment Strategist Liz Ann Sonders suggesting that there is a bubble taking place in commodities, spurred partly by speculators. That seems to be contributing to the rising prices of certain categories such as food and gasoline. (She mentions commodities speculation in this Wall Street Journal interview, too.)
And it does look strange. Consider this: while the prices of food and fuel have skyrocketed, the prices of some things keep coming down.
For instance, we have been very fortunate that technology keeps coming down in price, year after year. I don’t think the prices of computers and software have ever been lower. It’s not a question of inflation across the board. It’s really a matter of some things being at record highs, and others being at record lows.
That’s the topic of my column this week at the OPEN Forum. I include some interesting statistics showing just how far technology prices have come down, and I also point to a fascinating interactive chart at the New York Times showing the differences in prices for a variety of categories. Some things have gone up, and some things have gone down.
Consequently, some small businesses are being hurt more than others in the current environment. If your business happens to depend heavily on commodities — say you run a pizza shop and depend on flour and cheese — you are being hit hard. But if you are in a business that relies primarily on technology, then your costs of doing business may be low.
What do you think is happening? Weigh in with your opinion about: Technology Prices Defy Inflation (So Far)
The lower prices in the tech sector has to do with higher competition, deregulation and global trade. The higher prices in commodities is a natural fluctuation depending on supply and demand. Higher gold price and other precious metals is linked to the public fear that the leading politicians and state officials are hurting the economy by doing wrong policy decisions, e.g. printing more fiat money, giving out more handouts, subsidize all kind of things, etc. When the paper currency is less valuable and you don’t have an objective standard as a backing, people turn to safe things like gold, silver and so on. I recommend you to check out http://pricedingold.com/ – True prices measured in gold.
I have a special interest in commodities and I want to start with trading of these derivatives when time is right. I bought minerals, metals, and raw materials for the production of welding electrodes for 8 years and I have followed the trading business for a long time. I am interested in getting in contact with individuals who share my interest.
Trends open up opportunities and misfortunes. I’m glad hosting a website is still cheap! 😀
You can not eat technology.
It is true that you couldn’t eat technology, but you could get an option (futures) on commodities and lock in the price on a certain level.
I think inflation is killing the average family in regards to things we always need. Food, heating fuel, electricity and gas consume the average paycheck these days. I think technology is decreasing in cost because the demand has decreased so much. Luxuries simply cannot be afforded.
It is time to back to a gold standard with a real, objective value. Food could be cheaper if we could import in easier way from other countries. Cut the subsidies for American, French and other farmers. Start building nuclear plants if you want to have an cheap and safe energy source. Take back the oil and gas field in the Middle East and start drilling in Alaska. Do research on new energy alternatives, e.g. oil sand from Canada.
I’m glad that technology is more affordable now and that can probably be attributed to it evolving at the speed of light. But escalating food, heating and gas prices are hurting everyone. New alternatives definitely need explored. But imagine how many would stand to lose money if it happened? 🙂 I believe that’s why it doesn’t seem to be encouraged much until recent years. Personally, I don’t want my food imported nor do I want to cut subsidies for American farmers. Most of what we need is right here in the good ol’ US of A. No thanks to nuclear energy. . . has to be a better alternative than poisoning our planet. And drilling in Alaska is only a bandaid to the fuel situation. Takes our planet millions of years to produce the stuff and only a few miniscuel centuries for us to deplete it. Especially with demand from other countries now increasing at alarming rates for it as well. At this rate of demand. . . it’ll be gone in no time. New alternatives are needed.
The information you provided on the market position and price inflation and recession was very enlightening and I believe the points you put forth about small businesses need due consideration.
Yes, you have a huge variety of stuff in America, but you have to be open for man’s right to rearrange his surrounding, i.e. the environment, otherwise you will starve to death, mentally an physically.
Read Environmentalists’ Wild Predictions by Walter Williams:
Martin Lindeskog – American in Spirit.
It looks like a bubble to me. I don’t think that over the last 2 or 3 years, we starting eating 2 or 3 times more, or the land use was reduced by 2 – 3 times.
Somewhere in the middle, between farmer and us, users, there are some people, perhaps wearing fancy overcoats and carrying fancier calculators slicing and dicing something. Just like their fellow capitalists, the mortgage slicers before them.
And I am sure that sooner or later, (I am hoping for sooner), this commodity bubble should burst.
One reason technology eg. software prices have gone down is that many companies are focusing more on the service side of the business where it costs the customer extra to get tech help. This is extra sales and profit. Also with software as a service there are no costs associated with packaging, disk burning, assembly of the product etc so the price can be lowered and margins maintained.
There are certainly pro’s and con’s to inflation.
Everything costs more, certainly a con. It costs more to buy food, it costs more to drive my car, it costs more to go to a movie.
The advantage is that as the value of the dollar declines that your investments that are not based on the value of the dollar will go up. For instance if you invest in real estate, and you buy a house at $300,000, the price of the house will go up with inflation, and you will make money off of that.
Now you can invest in gold, and if the value of the dollar declines, the price of the gold will go up (typically). When the US dollar was based on the gold standard, this was not as much the case.
The problem is when people can’t afford to invest, they are stuck living day by day with the value of the dollar declining. It makes it hard to get by.
Change. Change and Change. The pace of change around the world is outstripping the institutions’ ability to manage it. And the pace of change is different in different places where the same institution attempts to manage it. And then that’s aggravated by multiple institutions whose pace of change differs individually.
That’s causing the anomalies in deflation and inflation within the same country
It’s going to be a rocky ride. Some great opportunities will arise. Let’s focus on that side of this equation.
This post reminds me of the Stuff Video. http://www.storyofstuff.com/
Shama, Thank you so much for providing a link to this video. It was an eye opening experience. I was stunned to learn that only 1% of items we purchased 6 months ago are still being used. WHAT! :0 That’s insane. I highly recommend that everyone takes a look at the video for the true realities of our economy.
The investment in communications infrastructure by the telecoms that took place in the late 90s and early part of this decade paved the way for the SaaS-enabled technology environment we enjoy today. If the same kind of investments would have been made to move the country off of foreign oil that we wouldn’t be facing the current economic conditions. The telecoms saw it as an investment in the future to build out a new infrastructure. I guess those participating in the auto industry liked things just as they were, and we all are paying the price for that now.
Who in reality these days has money to invest? I think that would be a really small percentage of the population. Most of the American public is just trying to keep their heads above water. I definitely do not want to look for cheaper ways of importing food and goods. What happened to living off the land, OUR land. Not to mention worrying about what other countries may put into the food we would import. I’m not comfortable with that at all. I only hope that change is coming and that it’s not too late. We need something new to happen and to restore our faith in the government.
All of this turmoil was predicted by Portland’s Peak Oil Task Force. It is actually a business plan for future market opportunities.
We all need food to live : )
Thank you for your interesting analysis.
I totally agree with you in this regard that small businesses are also being suffered by inflation or price hike of daily commodities. Regardless to the size of business, an entrepreneur or a businessman/ businesswoman has to buy food and other daily commodities. So, be it inflation or recession, it is affective both small and big businesses. Yes, the price of technology items have gone down, but still I think, the prices could have been more attractive than what it is now, if there was no inflation or recession, because I think, everybody of a society suffers more or less from inflation.
The computer manufacturers are now paying more to its employees because of inflation. Costs of distributing products have certainly gone up because of hike in fuel or petrol price in international market. So, you can see that even though the price of raw materials might have remained same, the production costs of technology related businesses have gone up and there is definitely huge competition in the global market as new companies are emerging in technology field. So, I think, because of inflation or recession, technology businesses are also being affected.
C’mon really Now? The US gov subsidizing petro oil co’s and the production of ethanol from grain storages is just freakin retarded and only benefits those who have there hands in the american pie ie the tax dollars of the middle class. ethanol takes more energy to produce than it actually delivers and our government subisdizes this net waste. RETARDS and GENIUS . Id prefer to have a sandwich rather than a hard disk to eat on. I dont care about how cheap it is to buy a new ipod or camera phone when people who work full time jobs cant put eggs on the dinner table and private charity’s warehouses are empty due to greed of major companies hording there cash. As to inflation well what is it? Anybody have a real definition which wont change for those who want to hide the truth. Real estate appreciation or Inflation up 100% in 5 years. Food cost up 30-40% in 3 years, Gasoline up 100% in 4 years, oil up over 100% in 1 years. Water municipal up 50% in 4 years. You think?
Great take on inflation (and recession)!
I agree that there’s always 2 sides of everything – in this term, some suffer, some prosper.
I also wrote about this in my blog – http://www.noobpreneur.com/2008/04/03/10-reasons-why-recession-is-good-for-you/
It’s interesting to see the responses here and it’s clear that many are feeling the crunch. Technology does tend to fall into the luxury category though when it’s either an iPod or several days worth of groceries or fuel. And investing isn’t an option when your living pay check to pay check as many are now. People are cashing in investments just to survive.
As for new alternatives, Brent summed it up best:
“The investment in communications infrastructure by the telecoms that took place in the late 90s and early part of this decade paved the way for the SaaS-enabled technology environment we enjoy today. If the same kind of investments would have been made to move the country off of foreign oil that we wouldn’t be facing the current economic conditions. The telecoms saw it as an investment in the future to build out a new infrastructure. I guess those participating in the auto industry liked things just as they were, and we all are paying the price for that now.”
Our dependence is our weakness . . . and change is a good thing.