Recently, the news of rising cigarette prices, water prices, and gas prices has come frequently, which has aroused strong concern among the general public. Under the sound of "rising", everyone's wallets felt a trace of panic.
Some people wonder: if tobacco, tap water, and natural gas, which are not very competitive, are prices rising, will other necessities of life also rise?
There are even more worries that this wave of price increases will turn into a fuse for a new round of full-fledged inflation.
What is puzzling is that at present, the overall economic growth rate of the mainland is slowing down, the downward pressure is not small, and prices should be stable.
There is no free lunch in the world, and there must be a hidden story behind the price increase.
1. The relationship between inflation and the prices of daily necessities
Inflation refers to an economic phenomenon in which the increase rate of money supply exceeds the increase rate of the supply of social commodities in a certain period of time, resulting in an overall and sustained rise in the price level.
Signs of inflation arise when there is too much money in the economic system that exceeds the needs of real economic activity.
Rising prices have a huge impact on people's lives, especially for necessities with less elasticity of demand.
The so-called low elasticity of demand means that when the price of such goods rises, the decrease in demand is much smaller than the increase in prices.
In the case of tap water, for example, even if the price is increased by 20%, the water consumption of most households will not be significantly reduced, because water is an indispensable resource for life.
Water companies know this well, and they know that they control a "just-in-demand" industry, and the room for price increases is far greater than that of other industries.
Similarly, industries such as tobacco and gas have this "pricing power".
Even more worrying is the fact that inflationary pressures may intensify rather than abate.
This is because, when the macro economy is weak, central banks tend to adopt loose monetary policies and increase the money supply to stimulate the economy. However, the vitality of the real economy is insufficient, the effect of monetary injection is often unsatisfactory, and hot money cannot find good investment and exports, and may eventually flow into the field of people's livelihood, pushing up the prices of daily necessities.
In 2023, the U.S. economy will fall into stagflation, GDP growth will slow down, but the inflation rate will once exceed 8%.
Against this backdrop, prices for daily necessities such as fuel and food have risen most significantly, even exceeding official inflation. Ordinary people are suffering from this, their wealth is depreciating rapidly, and the cost of living is rising.
This case vividly illustrates the characteristics of the economic downturn, when the pain of inflation continues unabated, and the price of necessities rises.
Let's put aside the heavy economic theories for a moment and talk about the price changes around us.
Have you noticed lately that buns are more expensive at breakfast shops than before, the price list at barbershops has been revamped, and bus fares have been raised again? These seemingly inconspicuous changes are the embodiment of inflation. We can't stop inflation from coming, but we can be vigilant and prepare early.
If you convert more deposits into real assets, you will not suffer a loss from currency depreciation; Another example is to try to find new sources of income and walk on multiple legs to resist risks.
Only in this way can we keep our "money bags" in the flood of inflation.
Second, the relationship between the price of daily necessities and the cost of the industrial chain
While we marvel at the skyrocketing prices of daily necessities, have you ever wondered why?
The truth is often hidden in the invisible industrial chain.
Although daily necessities, such as tobacco, tap water, natural gas, etc., are directly facing consumers, their prices are not determined in a vacuum, but are determined by multiple factors such as upstream raw material prices, labor costs, and transportation costs.
Take the tobacco industry as an example, tobacco planting, drying, processing, packaging, transportation, each link requires a lot of investment. If the prices of pesticides, fertilizers, packaging materials, fuel, etc. rise, the production costs of tobacco companies will rise.
In order to maintain profit margins, enterprises often choose to pass on cost pressures to the downstream, and terminal retail prices will inevitably increase.
Rising labor costs are another major driver driving up the prices of essential goods.
As the demographic dividend fades, labor shortages become increasingly prominent, and companies have to increase wages to attract and retain employees.
Taking the water industry as an example, the labor cost of water plant workers, pipe network maintenance workers, meter readers, etc., is rising. These costs will eventually be reflected in the resident's water bill.
It is worth mentioning that most of the tobacco, tap water, natural gas and other industries are operated by state-owned monopolies, which are in an absolutely strong position in the industrial chain and have strong bargaining power for both upstream and downstream.
Once the cost rises, they are more inclined to pass the pressure on rather than absorb it themselves.
Therefore, the price increase power of these industries is far greater than that of ordinary competitive industries.
Let's make an interesting analogy: if tobacco is a piece of cake, tobacco farmers, tobacco companies, and retailers all want a piece of the pie.
If the pie is that big, everyone's share is bound to be limited. But if the cigarette company, as a cake maker, insists on cutting a large piece for itself, the others will have to get a smaller cake.
The consumer feeling is that there are fewer and fewer cigarettes for the same money.
epilogue
Through the lens of economics, we have a more comprehensive understanding of the reasons for the rise in the price of daily necessities.
The pressure of inflation and the rising cost of the industrial chain have jointly pushed up the terminal selling prices of tobacco, tap water, natural gas and other commodities.
In the economic downturn, people are already under the pressure of declining incomes and unstable employment, and the pain of soaring prices is undoubtedly worse.
In the face of rising prices, both the government and enterprises should take active actions and strive to support the people.
The government should strengthen price supervision, severely crack down on illegal activities such as price hikes and collusion to raise prices, and use the weapon of law to protect the rights and interests of consumers.
At the same time, the government should also improve the social security system, expand the scope of subsidies, and reduce the living burden of low-income groups.
As suppliers of daily necessities, state-owned monopolies should show their responsibility, take the initiative to compress profit margins, minimize the impact of rising costs, and give consumers a "cheap" explanation.