Economic Lowlights: 2/26 Wholesale prices SOAR

Discussion in 'General Discussion' started by hacon1, Feb 26, 2008.

  1. hacon1

    hacon1 Monkey+++

    Wholesale prices jump in January

    We've seen this actually happen over the last 3 years or so in our business. Many things we used to buy that were exclusively American made have been outsourced in increasing percentages to foreign manufacturing... primarily China.

    It's all supply and demand, and anyone who tells you otherwise is economically illiterate. Supply + Demand = Price Pressure.

    1) If supply rises, or is greater than demand, then there is downward pressure on price (...and conversely if supply drops or is lower than demand, then there is upward pressure on price).

    2) If demand rises or is greater than supply, then there is upward pressure on price (...and conversely if demand drops or is lower than supply, then there is downward pressure on price).

    Now I'm not talking about prices here in the USA... What I'm talking about are the prices in relation to overseas production.

    What is happening in most of the markets in which we deal, is that suppliers are going offshore in order to lower their product cost to the effect that they have both a greater profit along with a lower price. This lowers price, which provides an upward push to demand (more people will buy the product if it is cheaper). But at the same time, lots of people have gotten the same idea (not just Americans either... China exports HUGE amounts to many other areas of the world as well), and the supply of cheap labor overseas has diminished. The average chinese worker is demanding higher wages, and the result is an increase in their cost of living. This reduces the benefit of producing overseas because the cost is increasing. Increased labor costs in China created in part by increased demand from other countries for that same labor lead to higher prices on american shelves for those cheap chinese-made items.

    Secondly, Chinese production has affected the price of raw materials. Their increased demand for the supplies needed to produce all these items for US and others has led to those supplies going up in cost, leading to an increase in the cost that we pay for those 'cheap' items.

    The bottom line is that wholesale prices for many things are going up, and inflation is a real factor in today's market. Worldwide demand for both overseas labor as well as manufacturing source materials is increasing, while the supply is not keeping pace. The result is higher prices.

    Just a little insight from my perspective.
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