The Good, The Bad, And The Irrelevant: Turkey Prices Hit All-Time High

Bad.

As Thanksgiving approaches, the price of turkey has hit an all-time high, evidence that inflation may have begun to affect the economy more than most Americans imagine

Bloomberg reports that “U.S. wholesale, frozen turkeys jumped to $1.09 a pound on average yesterday, the highest price ever and up 28 percent from a year earlier.”

There have also been a run-up in oil and gold prices and sharp rises in the prices of a number of important agricultural commodities.   It is unclear what the impact of higher cotton, sugar, or coffee prices will have on consumer and consumer products companies,  but it probably won’t be good. Companies such as  Starbucks (NASDAQ: SBUX) and General Mills have already begun to raise prices. Companies that use cotton, meat, and sugar in their products will probably have to do that same. Taken together, they are a very large part of the consumer goods industry.

Consumer goods companies may find that price increases cost them sales, which makes the pricing process a tight rope act. Consumer expenditures remain depressed by unemployment, fear of unemployment, and Americans who are deep in debt because they lived beyond their means in the years before the Great Recession.  These consumers may simply reject higher prices by buying fewer higher-priced goods.That leaves many companies with no way to keep margins high.  And, that can lead to lower capital expenditures and layoffs as firms attempt to maintain profits. The increase in the cost of goods sold could lead to a vicious circle which will slow the economy.

Deflation is the enemy of the US economy now, according to some economists. Turkey prices show otherwise. Price inflation for most goods and services has not reached the retail level in force, but it is about to.

Douglas A. McIntyre.