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Manufacturers or consumers: Who pays the highest price for inflation?

Source:Vendavo     Date:2022-06-09
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Inflation is affecting everyone this year, and while forecasters believe it has peaked and is slowing down, the impact of the initial peak will continue to affect people's finances for years to come.


Amidst post-pandemic volatility, inflation in the US is spiking once again and has climbed to a 40-year high, reaching 8.3% for the first time since 1982.


Experts estimate that inflation will remain at 6.3% towards the end of 2022. The resulting uncertainty and inflationary pressure create a challenge for pricing teams - and the solution often involves pushing prices up.


To discover whether producers or consumers are being most affected by inflation Vendavo, a leader in B2B pricing and selling solutions, comparatively looked at the Consumer Price Index (CPI) and the Producer Price Index (PPI) to determine which consumer items have the highest markup as a result of inflation.


To do this, Vendavo compared the two indexes over a six-month period, both of which included monthly percentage changes (the US city average) of the following; Energy, food and all items less than food i.e. vehicles, apparel, shelter, etc. 


The research revealed that energy companies had the largest overall discrepancy between PPI and CPI - but the costs were being absorbed on the consumer end rather than by producers. January 2022 saw the beginnings of production price increases. By March, those costs had been shifted across to consumers with the consumer price index overtaking production price index for the first time this year - resulting in a 5.3 difference between the two.


However, in the food industry, it is the producers who are absorbing the increased costs. Out of the industries covered in the research, food saw the second largest discrepancy between the consumer and producer price indexes after a spike in the latter at the end of 2021. By March 2022, producer costs were 1.4 higher than that of consumers.


Across all other sectors (all items less than food), consumer costs remain lower than production costs with a difference of 0.8.


“Our research shows the costs that consumers are absorbing in comparison to producers - and it’s not surprising to see that energy is the biggest culprit based on recent price increases,” said Mitchell D Lee, Vice President of Product Marketing at Vendavo said:


“The pandemic has evidently had a role in pushing prices up but there is more to the spike in our daily living costs. Among some of the reasons are: supply chain issues, surging demand, production costs, and ongoing relief funds. For businesses, there are extensive resources and guides surrounding this issue and there are ways to weather the storm including data-driven, proactive price adjustments, price optimization, prioritization of high-profit products, and reducing margin leakage.”












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