October 12, 2022
We have been hearing endless stories about how inflation is wiping out families who are struggling to make ends meet. And now, just when you thought it couldn’t get any worse, the Washington Post tells us that the major retailers are slashing prices to deal with an inventory glut.
“Dell has too many computers. Nike is swimming in summer clothes. And Gap is flooded with basics like T-shirts and shorts.”
“In response, many of the country’s largest retailers are kicking off holiday sales earlier than ever, in hopes of clearing their warehouses enough to accommodate a new round of winter orders, according to company filings and earnings calls.”
Many of us who follow the news might think this would be great news, just what the doctor ordered for households struggling with inflation, but no, that would be wrong.
“And the timing couldn’t be worse, as Americans’ appetite for clothing, furniture, electronics and other goods has cooled off in part due to surging inflation but also because of changing pandemic patterns toward services like restaurants and travel. Monthly household spending on goods has slowed lately.
“With inflation stubbornly near 40-year highs, many are finding that even the deepest discounts aren’t translating into sales. Americans are spending more of their budgets on essentials like gas and groceries, leaving less for nonessential items.”
This sure looks like a bad case of the “which way is up?” problem in economics. After telling us about how people think the economy is awful because of inflation, now the Washington Post gives us the bad news that prices for a wide range of products is plunging.
Oh, and just in case readers get confused, many of these items with falling prices, like clothes, fit into the essential category. Apparently the Post missed it, but gas prices have fallen sharply since their peak this spring and are now much lower in real terms than they were through the first half of the last decade, so high gas prices are not keeping people from buying other things.
After telling us how the rundown of inventories will slow economic growth, towards the end of the piece, the Post finally does mention a positive side to the picture.
“Wide-ranging discounts could help ease some of the pain of inflation. Overall prices have risen 8.3 percent from a year ago, a notch down from the summer’s highs but still far higher than historic norms, according to the Bureau of Labor Statistics.
“There are already signs that prices are easing in some parts of the economy. Appliances, bedroom furniture, jewelry, TVs and smartphones were all cheaper in August than they were in July.
“’Prices will get lower,’ said Liz Ann Sonders, chief investment strategist at Charles Schwab. ‘We’re already seeing it to some degree: disinflation, if not outright deflation, in some areas where companies just have to work down their inventories.’”
After hearing endless stories of “inflation, inflation, inflation,” we might think tumbling prices for a wide range of goods would be a really positive story, but not in the Washington Post. This is just a story of troubled retailers, struggling to manage inventories and seeing shrinking profit margins.
As they say, “bad news for Biden.”