Inflation Psychology is setting in

"There is a high probability that a self-perpetuating wage-price spiral will develop in the next few years." - Richard Curtin

I'm starting to see a pattern when I'm talking with business owners about their capital needs; every business owner I speak with expects prices to be higher soon. That is a profound change from just a few months ago when most of them were actually hopeful they would see prices recede obviously buying into the constant reminders on television news shows about how inflation is "transitory".

Those stories were not true. We are at the beginning of a much longer trend and it's starting to take hold as business owners now anticipate higher prices in the future causing a reinforcing loop of "expectations - reality".

Right now it's Blueberry season here in West Florida and so I went out to pick some fresh Blueberries from "Bob's Blueberries", a local U-Pick Blueberry farm nearby. The fruit was ripe and delicious as it is every year however, the price went from $4/lb to $4.75/lb - almost a 20% jump from a year ago. The owner, Bob Waldo told me "you don't make any profit anyway, the price increase just keep me from losing, my fertilizer cost has gone up $400%"

This change is a psychological one which is why it has taken this long to catch on and also the reason why it won't be easy to change anytime soon:

"Households have already become less resistant to paying higher prices and firms have become less resistant to offering higher wages. Prices and wages will continue to spiral upward until the cumulative erosion in inflation-adjusted incomes causes the economy to collapse in recession. It is like the children's game of musical chairs: Everyone knows the game will end, but they feel compelled to keep racing around the circle at an ever-faster pace hoping their forced exit will leave them in the best possible position—even if it still means an inflation-adjusted loss." - Richard Curtin

I'm seeing more and more merchants deciding to "pull the trigger" on purchases they normally would have waited to make later in the year. The expectation of higher prices and/or shortages has changed the way businesses make purchases and the same changes are being made simultaneously by consumers.

Once a pattern of ever-increasing cost - prices is established it becomes self fulfilling until demand destruction renders the business model nonviable.

We're not even close to that time yet which is why I keep pounding on the same drum: It's good to use debt to purchase more inventory and supplies because their prices are rising faster than the cost of capital.

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