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Oct 17, 2012

Economic Indicators and how Consumer Price Index affects Retailers

Tonight in Economic Indicators we look at the question of inflation and how the Consumer Price Index affects Retailers. The Statistical Institute has released figures that show a relative high rate of inflation.  The Consumer Price Index, a key measure of inflation released in October 2012, shows a one point seven percent increase for the first eight months of the year, that’s a point six percent increase over the same period last year.  Prices for food and healthcare rose significantly.  In this segment, we look at how inflation affects retailers.  High prices of oil, energy and commodities have a direct effect on retailers and their pricing strategy. At a time when the economy is already weak, retailers face the challenge of either increasing prices and taking the hit or absorbing the increased costs and sacrificing their profit margins.

Overall, inflation has a double impact on demand as each dollar buys less than it once did and consumers are spending less, which means that retail volumes fall into negative territory. As a consequence for retailers, a negative volume is particularly punishing.  If sales are down, there is less capital to invest and less money to spend. While some retailers may have tried to keep their prices down and remain competitive, current inflationary pressures will have an unavoidable effect on pricing.  Many manufacturers and retailers cannot afford to absorb past cost increases by offsetting them through cost savings elsewhere; or by lowering profit margins.  The pressure of inflation limits their ability and willingness to reduce prices, creating a direct adverse effect on consumers who, faced with stagnant wages, have less to spend. At the same time, the added burden of high unemployment, is keeping a lid on pay growth. Overall, it is safe to say that thatCPIinflation is currently outpacing consumers’ average earnings and growth and while the inflation rate increases, real pay falls sharply.  In sum, demand weakness and competitive pressures alone are unlikely to be sufficient to hold down retail prices and price increases will ultimately be passed on to the consumers.  The data suggests, therefore, that current inflationary pressures face a much stronger and further headwind and that is not good news for stressed-out consumers.

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3 Responses for “Economic Indicators and how Consumer Price Index affects Retailers”

  1. Storm says:

    This story omitted another effect of inflation, GOB receives a windfall. As prices increase, such as from higher fuel costs that drive up almost every price, the GST revenues also increase. The question, of course, is whether GOB will be honest and prudent with this windfall.

  2. Ricky Malthus says:

    This is old hat ! We said 12 years ago Belize is a failed state and in the same breadth excoriated the governments for excessive taxation and interest rates, 33% unemployment, 23% price increases because of government’s price shocks. Belize economy has already collapsed; you cannot use SIB’s data in any analysis since they are not reliable and biased which makes it impossible to provide meaningful analysis for Belizean consumption. Another observation, businessmen and women don’t venture into business to absorb costs, they venture to make a profit. Continuation of the same failed economic strategies and tactics is crazy and deepen the destructive economic abyss. You must do a research on where the $50 million to BTL and lately the $15 million to BEL went. But bear in mind that the consumers pay for everything. If they only knew they are the real sovereigns they can take to the streets and bring about all political and economic changes for their betterment.

  3. Bear says:

    You’re right, Malthus. We need the strike that began in Cayo to roll into the other cities, towns, and villages, put people power into the streets, and stop the country until GOB falls.

    We need a new constitution, new leaders, and new elections. As a nation we have enough resources to prosper, but we have major parties and a system that has permitted corruption, patronage, and nepotism to take over almost everything. We need to storm the castle with torches and pitchforks.

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