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Tuesday, September 27, 2022

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A Benefit Of Soaring Inflation: Americans Are Starting To Eat Less

While the Dallas Fed is traditionally a C, or at best a B-grade economic indicator, it is best known for having some of the most entertaining and insightful critiques of the Biden regime, such as the following:

  • “We’ll all be lucky to have a job with two more years of this disaster.”

  • “You can’t ignore the economic fundamentals leading to a likely recession, and the administration [in Washington] is either stubborn or as paralyzed as a deer in headlights”

  • “Government overspending and transfer  programs have inflated the money supply while resulting in unchecked corruption  and waste. We will be paying that bill for generations, and what a colossal  waste of resources and missed opportunity.”

  • “Everything we buy and sell comes and  goes by truck, if we can get a truck at any price. Inflation will continue  until the country is self-sufficient in oil and gas. The current political  policy may not change until 2024. Therefore, inflation will be our consistent  companion for a while, then stagflation!”

  • “We see the environment for the oil  industry becoming even worse than the previous months. Biden is promoting a  very caustic attitude toward the oil industry, which doesn’t help the country  in any way.”

We bring it up because today we got the latest monthly update from the Dallas Fed Manufacturing Activity survey, which came in largely as expected at -12.9 (exp -12.7) and well above last month’s catastrophic -22.6.

And while there was the usual stabs at the Biden admin among the various respondents to the August survey…

  • The Biden administration, Congress and the Federal Reserve are on a negative path for the economy.

  • We are on the verge of losing confidence for the rest of the year.

… the one response that was probably the most informative this month did not have to do with Texans’ views of Biden but rather how the food industry is changing as a result of soaring food prices. What we learned is that one of the fringe benefits of the inflation surge is that for once, Americans are actually eating less!

We are seeing moderate (-2 percent to -4 percent) decreases in volume, which is a shift from our historical volume trends (+6 percent).

Less remarkable, but more amusing is that in addition to eating less, American consumers are trading down, much to the chagrin of “organic beef sausage.”

Consumer behavior is shifting to lower-priced items in our category as they struggle with inflation. We see particular stress in our highest-end products, notably our organic beef sausage, as consumers trade down.

Finally, the good news for US food companies is that as always, high prices are the cure for high prices, and as volumes shrink, corporations are starting to cut prices…

We see strong consumer response to promotions, which is driving up costs. We are currently recasting our volume forecast to align with this reality and believe that we can hit our financial targets for the year with increased operational efficiencies.

… which means a return to normalcy is in store, but not before a major hit to profit margins over the next several quarters.

This post was originally published on this site

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