24/7 Wall St.

Possibly the most critical debate at the moment in the global economy is whether central banks should fight inflation or deflation. On its face, inflation appears to be the lesser of two evils. High unemployment, which plagues North America, Europe, and to some extent Japan, has weakened demand for goods and services out of the market.

On the other hand, there is a reasonable concern that low interest rates, fostered now in the US and until recently in China, will create an asset bubble. Capital will be available at essentially no cost. That capital will seek assets that are likely to appreciate in value over time because they have done so historically. Those assets will be purchased at ever increasing rates, and inflation will likely set in.

The irony about inflation in the United States right now is that the prices that consumers and most businesses pay for goods and services are not rising. Demand is low because of the recession and unemployment. Corporate sales are low, so the cost of goods must be kept low to maintain margins. Capital may be available to large companies with strong balance sheets. Small companies and consumers are not welcome at banks, and real wages in America have been stagnant for a decade. All of this combines to keep the retail prices of most items flat or slightly down.

One level down from retail prices are the costs of goods themselves. Cotton is used in a huge number of clothes and fabrics. Cotton prices are affected by a number of factors, including weather and the amount of the crop each farmer chooses to plant. The same is true with coffee, wheat, or grain. Right now, a number of those elements have moved cotton prices to an all-time high.

It is too simple to say that the prices of goods and services are set by supply and demand. However, those elements are often critical to retail and wholesales prices. There is an increased demand for used cars because many of them run as well as new ones, which are obviously more expensive, and often carry the same full warranties. Budget-conscious consumers have pushed demand for used cars higher.

This 24/7 Wall St. study looked at a number of products and services that are at or near their historic peaks. There are a number of other goods that would also be at historic levels if were not for the period of massive hyperinflation four decades ago. We did, however, find a broad range of things that are at all time highs. The ripple effects of these prices can be significant. They are also a sign that inflation may be lurking in the economy, just below the surface.

The following are the goods and services which have hit all-time highs:

1. Turkey:

The price of wholesale, frozen Turkey reached an all-time high last week of $1.09 per pound, well above previous records. The new peak, which arrives just in time for Thanksgiving, is due both to record low demand and record high feed prices. While grocery stores are being forced to buy turkey from producers at record cost, they will largely be unable to transfer the increase costs to the consumer during the holiday season. Demand for turkey is expected to reach a 22-year low, at 16.2 pounds per capita. In order to maintain competitive sales and provide the expected holiday discounts, grocers will likely take a significant hit in sales margins.
2. Cotton:

Cotton Futures hit an all-time high last week at $1.58 per pound, well above historic prices. Cotton has reached its peak as a result of severe export shortages in China, the world’s largest producer and consumer of cotton. If the price continues at this rate – nearly four times higher than its recent low in 2008 – the cost of production of clothing and textiles is bound to increase. Major distributors are expected to raise prices to account for the rise. Suppliers to stores like The Gap and Walmart report they will increase prices between 5% and 30% in the coming months.