What Side of the Fence?

By Andrew Paparozzi
In May 4, 2011

Over the past several months, comments on inflation have been all over the place. Inflation is already a problem; it’s not a problem yet, but it’s going to be; inflation is and will remain under control. These are just some of the comments we’ve been hearing, with each viewpoint pointing to various data sets for support. So which is it? They all can’t be right. Unfortunately, there’s no definitive answer. The term “inflation” refers to “a persistent upward movement in the general price level.” But how one decides what represents the general price level to them depends on what side of the fence one’s on—the term “inflation” is not one-dimensional. Normally, we think of inflation in terms of economy-wide indexes such as the consumer price index (CPI), or the producer price Index (PPI). These and other broad measures, especially the former, are what policymakers focus on. In March, the CPI was 2.7% above a year ago, compared to an increase of 2.3% during the previous 12 months. When excluding food and energy (the “core” CPI), the increases were 1.2% and 1.1%, respectively. As for the PPI, the overall 12-month increase in March was 5.8%, down from 5.9% during the previous 12 months. The core PPI showed gains of 1.9% and 0.8%, respectively. These data show why there are various views on inflation.

But these indexes represent the collective impact of numerous price changes. No doubt, they have a bearing for policymakers attempting to judge the buildup or lack thereof of inflationary pressure within the system—the entire economy. But the inflation rate for individual consumers and businesses is determined by the goods and services they purchase. In other words: The inflation rate for companies depends on the price of the inputs they require to conduct business. What matters for companies is what’s happening to the cost of doing business and the company’s ability to adjust their prices accordingly. 

Overall, “core” inflation may be subdued. But, as many in our industry know all too well, cost inflation can still be a significant problem. This is especially true when margins are already tight and prospects of pricing power slim. Commodity prices have been rising for some time, but it took a spike in gasoline prices to shine a spotlight on the potential problem. The potential difficulties presented by cost inflation should not be coming as a major surprise to those following our research. As reported in the May 2010 NAPL Printing Business Conditions, more than 80.0% of our research participants then were concerned that cost inflation would squeeze already thin margins. Almost one-in-four were extremely concerned. Given that, if anything, cost inflation likely has intensified, we would suspect that concern has not abated. And that’s exactly what our latest research confirms. Responses to the NAPL Critical Issues Survey: April 2011 show that over 43.0% of participants only have been able to pass along some cost increases in paper and materials but not much else. Another 14.0% aren’t even considering passing cost increases along—the market is still too price sensitive. Less than one in ten of participants were able to raise prices beyond their cost increases. As one participant stated in regards to pricing, “It is hard, there is always someone across the country to do it for less.” The upcoming NAPL Strategic Perspective: 2011 will delve into what’s happening with costs and what strategies companies are adopting to protect their bottom line.

Andrew Paparozzi                Joseph Vincenzino

Andrew Paparozzi

Epicomm's Andrew Paparozzi, Vice President/Chief Economist, is well-known for his accurate and thoughtful discussions on the economy and US commercial printing industry. A foremost author and speaker on economic business trends in the printing industry, Paparozzi heads Epicomm's Printing Economic Research Center.

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