COVID-19 surcharges infuriate customers, but experts say dining out is about to get even more expensive
“At the end of the day, inflation is coming,” restaurant industry advisor and investor Roger Lipton told business insider.
- The cost of running a restaurant is on the rise as owners add new safety measures and food costs skyrocket by 38%.
- As a result, experts say that menu prices are likely to substantially increase as restaurants reopen.
- “Nobody wants to lose customers because of their insensitivity to the fact that the consumer is so stretched,” a restaurant-industry investor said. “So they’re going to very carefully raise prices — because they’re not going to lose money.”
Invalid Measure
The price of eating out is not exactly a valid measure of inflation.
What about car rental prices, hotel bills, car prices, plane tickets, etc?
Dollar Will Crash
Economist Steve Roach has the answer to my question with this prediction: A Crash in the Dollar Is Coming.
The era of the U.S. dollar’s “exorbitant privilege” as the world’s primary reserve currency is coming to an end. Then French Finance Minister Valery Giscard d’Estaing coined that phrase in the 1960s largely out of frustration, bemoaning a U.S. that drew freely on the rest of the world to support its over-extended standard of living. For almost 60 years, the world complained but did nothing about it. Those days are over.
Roach Concludes
Like Covid-19 and racial turmoil, the fall of the almighty dollar will cast global economic leadership of a saving-short U.S. economy in a very harsh light. Exorbitant privilege needs to be earned, not taken for granted.
He cites exploding deficits, the reserve currency, lack of savings, the coming stagflation, and the protectionist policies of Trump,
In regards to the latter, Trump will be gone in November and I doubt Biden will be worse even though there is a clear global shift towards nationalism and protectionism in both the US and EU.
Death of the Dollar
We have heard this all before, at least several times a year for the past 20 years or so.
Hyperinflationists Come Out of the Woodwork Again
On April 14, I noted Hyperinflationists Come Out of the Woodwork Again
I see it differently. On March 5, I wrote a Very Deflationary Outcome Has Begun: Blame the Fed
Will the Fed’s Balance Sheet Cause Inflation?
Robin Brooks comes to the proper conclusion.
“Given the big demand shock we face, hardly a legitimate worry,” says Brooks.
What About Asset Bubbles?
Brooks is discussing CPI inflation not to be confused with asset bubble inflation.
Asset bubbles are enormous now. The Fed contributed to them. And yes, they constitute inflation.
Why Isn’t the Dollar Collapsing Given Trillions in Printing?
I addressed many of these questions on May 24, in Why Isn’t the Dollar Collapsing Given Trillions in Printing?
Think Outside the US
I remain amused by all the calls of hyperinflation and high inflation given the Fed has turned on the printing presses.
However, currencies cannot be viewed in isolation.
To those expecting a total US dollar collapse, here’s my word of advice. Stop being so US-centric.
Debt Mutualization
What Germany fears now and has from the outset is “debt mutualization” in which Germany would bailout Greece, Spain, Portugal, and Italy.
And despite the German court ruling, Pablo Iglesias, Spain’s Deputy PM. says a “certain [level of] debt mutualisation is a [necessary] condition of the [continued] existence of the EU”.
Eurozone Breakup Risk
The EU once again faces a breakup crisis.
This setup prompted my May 8 post: Eurozone Breakup Risk at New High.
US Dollar Index Weights
I bring up the Euro because it is 57.6% of the dollar index. For the dollar to crash, the Euro and Yen have to soar. The Yen is 13.6% of the index.
Factor in Fed pledges to not let interest rates go negative (in contrast to Europe and Japan), and you have more reasons the dollar won’t crash.
For a discussion of negative rates, please see Negative Rates Are Not an Option.
How Long to Get Back to Even?
Demand destruction is enormous. The CBO Estimates it will Take 10 Years Just to Get Back to Even
And what about retiring boomers want to downsize their houses? Shifts in business travel, more work at home?
And what happens when asset bubbles break if not deflation?
Yet, given all this competitive currency debasement, I still have a question: Got Gold?
Mish
The bigger question is how long can the Fed keep doing this ? Aren’t we at the point of the Fed and Treasury being the lenders of last resort ? They will end up writing off most of the bad debt in bond markets.
Mish – you are bogged down in the current numbers and not asking the bigger relevant questions surround effectively MMT the Fed is doing is now.
What currency does gold trade in ?
The CPI doesn’t measure the Cost of Living. They are entirely different. Hazard insurance on my house up 33%, garbage collection up 6%, property taxes up 15%, food up 8%, etc.
You’re forgetting about supply destruction from the insane lockdown and travel restrictions (i.e. look at what Spain is doing right now), and the coming harsh downturn in temperatures caused by another Maunder Minimum that always causes crop failures.
I’m glad you’re finally coming around to considering global effects on the US Dollar. Also, the banks aren’t lending out all of their QE windfall.
If you’ve got gold, it’s likely the govt knows it, and they will tell you it is considered money laundering when they confiscate it. Got BSV?
When demand collapses for a product, will prices go up, or down? It depends. On the one hand, you have the temptation to slash prices to get more volume. On the other hand, if there doesn’t appear to be any way to get more volume, eventually you have to either adjust prices up to where the volume will cover costs (even though volume falls even more) or you have to close.
A few things.
Price push back. As an example, during / after the last recession Walmart was RUTHLESS with supply chain vendors – don’t care how you do it; lower prices.
Massive debt overhang been ongoing. 2020 will see massive increase in debt all along the spectrum (household, business, government). More $$s will be needed to service, taking away from current / future consumption.
Slowing & aging demographics.
The past 10 years of monetary policy has led to an over abundance of everything.
At SOME point there will be sustained overall inflation, but Bust comes first.
Competitors go bankrupt, those that keep standing, increase prices. Already noticed a definite inflation with Amazon, in the last few years.
“Competitors go bankrupt, those that keep standing, increase prices.”
…
Sure, that is what the classic – and dated – textbooks say.
They never imagined the wealth / income disparity of today. The past 20 years has seen the gap (for the bottom 80%) filled by easier credit. That donkey about collapse due to existing debt … not much more it can take.
As for UBI, I don’t see it ever happening in a meaningful way as it would destroy business. See the absurdity of$600 / week extra for those on UE. Politicians already saying it won’t be extended as reality revealed that folks prefer to sit home and make more money than actually going to work.
I’ve heard noises that Spain’s socialist government is planning universal basic income. Presumably also expect bailout, since border of Europe cannot go up in flames.
The example will be followed since free is infectious in democracy.
This will usher in another step down the rot. The rioting mob expect this as a birthright.
Micro-economy will impact macro-economy.
East Asia handled the pandemic much better. I can see where this is going.
Let’s be fair. Say your income is so low that you can hardly make ends meet. Can you tell me that you wouldn’t “prefer” to sit home and get more income? In such circumstances, people can’t “afford” to go to work. Could You?
For reduced demand to result in higher prices, a good would have to exhibit a negatively sloped supply curve.
If you look a specific good very narrowly, such a supply curve may exist. But the broader the view of a good, the less likely this is. As ultimately, the marginal cost of supplying a good increases once lower hanging supply fruits are exhausted.
At the scale of any kind of “macro” analysis, it’s a pretty sure bet that supply curves slope upward. Resulting in reduced demand leading to lower prices. Anything else is firmly in the realm of neat, but at most highly temporary and limited, “puzzles.”
Stuki, consider the situation where one company has a monopoly. If demand falls, unless the demand curve is steep, they will be more profitable at a higher price. Now consider a situation with only a few competitors. They will all be better off if they all raise prices. If they have been competing for years, they may know that their competition will raise prices, and have enough confidence to do so as well; they don’t need to have any secret meetings, or secret conspiracy.
For restaurants the situation is a bit different, but with a similar result. Because of reduced seating capacity, they can’t make up the difference in volume. Therefore, they have no choice but to raise their prices to a level at which they can make money with the smaller capacity.
Effective economic monopolies only exist, outside of leftist propaganda and fairytales, to the extent they are enforced by a government. So yes, once prices are effectively set by government dictat at the point of a million guns, they can indeed move entirely arbitrarily.
Just as the price of money does, once one specific privileged actor is granted legally enforced monopoly to produce it, can entirely arbitrarily set it at whatever the heck he pleases. And just as the price of houses (or alcohol or machine guns) do, in totalitarian regimes where government can arbitrarily limit who can supply them, and how many units those who’s are allowed to supply.
But as long as there is some, however minuscule, remnants of a “market” left which determines the price of a good (which really is a prerequisite for any economic reasoning at all): Maintaining prices above cost of production indefinitely, will always run into the problem of others observing that current monopolists are in fact extracting rent, then setting up shop offering to cut that rent in half. Recursively, until rent is eliminated.
Freedom abhors rent. Hence the only way to enshrine rent, which is a requirement for maintaining all the privileges and benefits which privileged rent seeking leeches like referring to as “The System”; is to eliminate freedom. Completely and in its entirety. Which, as Mises noted, also eliminates all and any possibility of any economic calculation whatsoever. Hence only ends one way: In total ruin. With only the time it takes to reach that inevitable endpoint, varying.
In theory only, capitalism thrives on competition … but since capitalism is operated by capitalists, and capitalists despise competition, in practice capitalism only ever comes to thrive on monopolization, usually enforced by the government after the capitalists “buy”/monopolize the government.
“….usually enforced by the government…”
Then remove that possibility.
Once corporations were fraudulently made to be “persons under the law” it was impossible to remove that possibility because one-person-one-vote had been replaced by one-dollar-one-vote.
Twelve years? Where you been??? How about decades of costly wars both in lives and money, abandonement of gold standard and fiat money system, permanent welfare programs that turned large swathes of the American public into slaves, lack of morality and work ethic as well as the desire for the quick buck without no sweat, American’s who have no desire to discuss politics or give a rat’s behind what is happening and prefer to focus on social media, unenforced borders, corporations owning politicians, focusing on one race instead of all lives matter, career criminals who have decimated the inner cities and made American’s lives in all settings a true hell hole and no true punishment for them (I’d refer you to Singapore’s caning punishment where they beat your ass with a cane or a TV documentary years ago on China’s prison’s where prisoners get on their knees and cut the grass with their hands-only 10% recidivism), medical system that fails many and based on profits, etc. I can go on. Sadly, American people don’t want change. They are gonna do, and keep doing. You see the results…Time to look for new frontiers (i.e. a secondary place to live) and that’s what I’m focusing on.
No, my friend it’s a lot longer than 12 years.
“COVID-19 surcharges infuriate customers, but experts say dining out is about to get even more expensive”
…
Good luck.
Expect demand destruction … courtesy of bottom 80%.
Just as I guessed … credit spigot tightening:
Lenders, responding to increasing unemployment rates and other risks, tightened lending standards in May, sending the Mortgage Bankers Association’s (MBA’s) Mortgage Credit Availability Index (MCAI) into a tailspin. The index dropped 3.1 percent to 129.3, the lowest level in six years.
Mortgage lenders in May responded accordingly to the increased risk and uncertainty in the economy. Credit availability continued to decline, with MBA’s overall index now at its lowest level since June 2014,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “There was a reduction in supply across all loan types, driven by further pullback in investors’ appetites for loan programs with low credit scores and high LTVs. Credit tightening was observed at both ends of the market, with less availability of low downpayment programs designed for first-time homebuyers, as well as for conforming and non-conforming jumbo loans.”
CPI (May) out this morning.
Negative print (month over month) 3 straight months.
Not sure how reciprocating trade policy is protectionist.
For the same reason burglarizing your neighbors house, after having had someone burglarizing yours, still makes you a burglar.
You can get hyperinflation without the dollar index crashing, if commodity prices soar in every currency.
Demand for consumer goods and services has decreased with increasing unemployment amongst the working class and those formerly employed in adversely affected businesses. So if these formerly employed were customers, you have to scale back your expenses as a business, shift to a more employed and wealthier demographic, and/or raise prices. Of course, if you draw your customer base primarily from the formerly employed demographic, and can’t reposition yourself, for example, a neighborhood bodega, you are toast. And cutting expenses means less employees, lower wages, no raises. Wonder how those $15 minimum wage cities will fare.
Price and inflation or deflation is always difficult for most people Mish, because even when prices rise and fall they accommodate that, they buy more of some things, less of others, or stop buying certain things at all. That is the economic concept of price elasticity and consumer resistance.
For most republicans if the GOP is in charge and prices rise then there just is no inflation, and they will simply deny it till the sky falls. If democrats are in charge then there will be nothing RIGHT about the economy, go ahead and ask them, they will tell you.
I say that right now there really is no way to measure prices except on the ad hoc anecdotal level because all price measurement done by the government is purely fictional.
So I can only judge based upon my income and what it can buy, or better put what I can afford. After all, I used to buy a pack of Marlboro in the Air Force at 11 cents in 1979, now 41 years later I pay $6.67, should we judge inflation by that? There are so many factors, short term volatile prices, like gasoline that affect most other prices. Long term prices like my cigarette example at 6,560% increase over 41 years? And I was in Riverside California then where I would have to pay over $12 per pack now so that inflation rate would be well over 11,000% if I were comparing what it would be if I were still there rather than now living in Florida.
But, I would like to point out that the average price of a new car then was $6,847 then and $37,851 now, a 310% increase, and if you add up all the annual CPI increases over those years you will see that they only come to about 256%.
House prices? They are up by a LOT more than 256% but that is one of those things that depends a lot on regional factors, pay in California has also gone up a lot more there than in Little Rock or Macon. Still, the trend has been not just up but up by quite a lot, the Fed’s mandate to maintain stability in prices and thus the value of the dollar has only been any success at all in the very short-term by trying to avoid as many price shocks as they can, over the long term they have failed utterly.
As to the future, had you asked someone in July 1929 what prices would be in July 1934 five yeas hence they would have said probably higher to a lot higher. And that would have been true for economists as well as the public at large.
So, I am not going to get into arguments over which it will be, inflation, hyperinflation, stagflation, deflation, or a total collapse of the dollar which you are right we can’t rule out. I will offer an opinion though, based on what I know about history and given my degree in finance with a special interest in economics, the Fed and federal government working together can much more easily affect prices to the upside than they can to the downside as we saw when they tried to end the inflationary impulses that started even before Nixon took us out of the Bretton Woods treaty and closed the gold window. YOY inflation was already running hot by their standards at 5% and more, I remember when they instituted wage and price controls in 1970. The gold window closure in ’71 was a reaction to inflation not the CAUSE of inflation. Had Nixon not closed the window the US would have no gold by as soon as 1975 by some estimates. I can only wonder what would be different if rather than ending the Bretton Woods Treaty Nixon had instead merely allowed the price of gold to float on a free market rather than maintain that ridiculous $35 per ounce price.
Had Hoover and the Fed and congress in 1930/31 been accommodating and sent out stimulus checks, as well as guaranteeing deposits at banks, rather than adopting strict austerity we would not have had the depression and the crash of 1929 would have been a lone footnote in history. Because banking was so unregulated and not insured the bankers would not have had to call loans made to Germany and the economy there would have been spared the rise of Hitler, so it was American capital poorly managed that spread economic toxin through the global system and gave rise to so many problems.
If we go into a deflationary depression at this point it will be intentional. Both the government and the Fed see inflation as a good thing, and they would rather have too much of a good thing than none at all. Deflation will be avoided at ANY COST Mish. Even if that means a UBI.
It’s easy to find things that rose faster than inflation because those are the ones that we notice. We forget about things that have fallen however. For example, I paid $450 for a vacuum in 1991, and today I could buy something similar for $150. Or, the $3000 computer I bought in 1988, where I could buy something thousands of times faster for $600 today.
Your argument does not take into consideration that all economics happen ON THE MARGINS. Accounting degrees teach you a lot about HOW to handle numbers, but not a lot about WHY numbers are what they are.
Any metric by wich you measure prices no matter if they go up or down will start with a baseline year, then one year later measure the same items like for like and the totals are then compared to determine the difference. But, the government use to do that quite simply till it showed inflation out of control during the Nixon, Ford, and Carter presidencies. So they started tinkering and rigging it, primarily they took out “volitile” items like food and fuels, even though they are up and stay up a lot longer than they are down. And I think it would be relatively easy to prove they rig that as well, having chosen the month of August to do the measuring when gasoline is traditionally lower than any other month for price because it is the end of the summer driving season and inventory in storage has to be drawn down for the making of winter blends of RBOB. And of course August is the month harvesting begins so prices drop at the end of summer.
So, some item are going to as you say go up and yes we do notice, some will go down, and believe it or not I notice those as well if they are in the basket of items I normally purchase. Most will stay the same, because sellers do not reprice every year, in tame inflation periods they may reprice higher every four or five years. If you see stuff repricing every year or two then you know you are in an environment where cost to produce/sell are rising fast. Or, when the price goes up AND they shrink product size. That has been happening a LOT lately. Trust me when it comes to toilet paper 12 rolls of the new and improved Charmin does not equal 84 rolls as it says on the packaging. That is nothing but a blatant attempt to get the BLS (which does the CPI price measuring) to apply what is called hedonic adjustments, where the price recorded is actually recorded lower because of product improvements. For example your TV cost you $2,750 but they will record the price at $1,500 because it gives you so much more quality that they claim it is not like for like compared to our old CRT TV’s. But it is a lie because the price of TV’s now is higher overall. You have to pay it. The BLS then applies what it calls substitution, consumers they say will opt for a non smart, non HD TV at $800 rather than pay for a smart HD OLED type TV at $2,700, so even though we pay $2,700 they mark it down as $800. There is chain weighting, geometric chain weighting, in which if the cost of an item goes up by too much and causes their preset inflation number to go higher they simply delete it or lower it’s weighting in the basket of goods. For example, if groceries go up by 8% and groveries make up 10% of all costs they measure, then they simply can drop the weight of food in their market basket to 6%, then the increase will have been wiped out.
I contend that the “CPI” is a plug number, they decide in advance what it is going to need to be to support an existing monetary and fiscal policy and then rig up a bunch of numbers that will make that plug number be the reality at the end of the measuring. It is pure fiction. If they need inflation to be zero in order to accomodate a NIRP lending environment then the CPI will be zero or even negative. If it is ever 5.5% again you can bet your bean counting ass that we are actually paying 15.5% more than last year.
On balance though, the net of falling prices against those that rise is always to the positive of rising prices. And the result is the inflation rate. There have been a few years in the last 12-15 that the government claimed there was no net inflation and so COLA’s were zero. But in each of those years where I lived (Oregon) my own experience was more than 10% inflation. Because they make no direct measurement of housing costs. Between 2013/14 lease period and 2019 my rent was up 90%, and a few of those years I got no raise at all.
And they have at least 8 different tricks for showing a lower inflation rate than we experience when we actually purchase items.
The bottom line is a rigged measurement that is massaged and dishonestly reported has been a huge contributor to lower standards of living. It is one of the main drivers of wealth inequality in the USA but thank god that is about to change, because the recent riots were about more than police brutality, they were about economic injustice as well. The government, police, Federal Reserve, and Wall Street have been put on notice, fix the problem or watch while the country burns and break up.
Your examples aren’t immediate costs. They are investments in capital items, as you don’t buy them very often.
Over here, I have observed the Euro dollar rate fall down to around .85 in 2000 but going up to around 1.60 in 2008 because the US were printing money (stock market and real estate bubbles) while Europe (mainly BENELUX and GERMANY) had not yet accepted such a monetary textbooks disaster to proceed.(except some sick countries like Greece and Spain which followed the US path) And then , when Europe fed up with the too strong Euro and hurted colletalerally by the US 2008 real estate bad loans disaster started to move interests rate down to zero and to instore QE, the rate went back to 1.2. Later on after 2015 when the FED wanted to shrink their balance sheet by raising interest rates, the Euro (negative interest rates at that period) drifted a little lower around 1.1.
These impressive fluctuations (100 per cent move) were linked to political factors mainly which were affecting confidence but foremost to the interest rate policies from 1990 and to the fed and ECB respective direct debt monetizing policies.
So if history is a guide, given that USD interest is almost at zero, the unprecedented fed money printing of around 5 trillions USD so far compared to the ECB one trillion Euro printing should lead to a net rise of the Euro (except geopolitical events unexpected).
The European union plan another Euro trillion plus injection but which should be supportive of the Euro strenght as it is planned to be BORROWED (not printed) on the saving market. Let us see if this borrowing happen!
However, if the Euro move too far and fast up comparatively to the USD, I expect politicians to implement further ECB money printing .
So we are in a competitive reflation-bubbles inflation war using computer money printing as a weapon.
I therefore support strongly Mish conclusion ;GOT YOUR GOLD? as this asset is the ultimate “against money printing” protection of your wealth wathever suspected or unsuspected (we got the COVID pandemic followed by the US social unrests as an example) economical and SOCIAL damaging events are ahead of us.
Demand for housing in WNY is insatiable. Health Insurance another 6% increase. Inflation is Geography driven.
We have reflation. The Fed is hoping for a recovery sooner but they can do this longer than we can stay solvent. The only thing that matters the next few months is employment recovery.
Asset inflation may continue, especially if the FED keeps supplying the juice at these kinda levels
I’m worried about inflation and negative interest rates because I haven’t invested in stocks.
It depends on the velocity of money. At some point, the FED may need to forgive some of the Treasury debt, increasing velocity of money= instant inflation.
I agree with@Sechel above, I see inflation coming. I would NOT say hyperinflation but costs will be going up with more money added to the system.
I look at the FULL economy not just what the Fed wants to cherry pick in the CPI.
Intermediate to long-term, I expect US dollars to remain the least-worst currency option. I’m glad this opinion is contrary to mainstream expectations, as is the expectation of deflation.
How does a country the rep of the US go so completely to shiit in 12 short years? WTH!! Every GD thing has to be rigged to keep it from collapsing on it’s ass!!
Exactly. The foundation is rotten, and terminal decline is now but certain.
It’s a terminal decline everywhere
Because dollars cannot become worth less much less worthless.