Good news! Retailers are slashing prices because the Reserve Bank’s policies are working! Yay!
Well, that’s according to, erm, the Reserve Bank. Last Wednesday, RBA assistant governor Christopher Kent told a Sydney audience that “we are hearing in liaison that a range of retailers are discounting prices in the face of weak consumer spending.”
Ah, the famed RBA liaison, the liaison that told them for years that wage rises were on the way.
If it’s true, it’s not working — retail sales in August saw the slowest annual growth at 1.5% since the depths of the pandemic two years ago — and negative growth in real terms. You wonder what questions the RBA actually asked business — most particularly, how much this price “discounting” is simply a reversal of previous price rises from the retailer or the supplier.
It also demonstrates how the current continuing elevated rate of inflation has nothing to do with consumer demand — which the RBA has been firing artillery at for 18 months — and everything to do with supply-side factors and profits.
For a particularly blatant example, let’s look across the Pacific to America’s second major carbonated drinks and convenience foods group, PepsiCo Inc.
Here’s how Reuters reported its September 30 quarterly financial report:
PepsiCo Inc on Tuesday raised its annual profit forecast for a third time this year, as the company banks on the multiple price increases it undertook across its major markets and resilient demand for its snacks and beverages. PepsiCo and rival Coca-Cola have been largely shielded from the effects of price hikes due to their near-domination of the global carbonated drinks market, as well as cost-conscious consumers spending on products categorised as ‘affordable luxuries’.
The company’s average prices jumped 11% in the third quarter ended September 9, while organic volume slipped 2.5%. The September quarter was the seventh quarter in a row the company has lifted prices, including an average price increase of 16% in the first quarter this year.
PepsiCo’s subsidiary Frito-Lay reported that its North America sales volumes dropped 0.5% during the July-September period as net prices rose 8%. North American beverage sales volumes dropped 6% as prices rose 12%. Sales volumes in Europe were flat. Sales volumes in Latin America dropped 5%. PepsiCo seems not to care about volumes, because the extravagant price rises deliver more profits than shrinking volumes.
Ideal for shareholders — and for inflation hawks who think the only response to inflation is to smash households. As Pepsi shows us, you can keep smashing households, and companies can keep jacking up prices and profits.
