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Use the “cereals and bakery products” section on the Consumer Price Index for the paper

Economics

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Use the “cereals and bakery products” section on the Consumer Price Index for the paper. Use and Include two article references for what is driving the cost increases in the “cereals and bakery products” market. Keep in mind that average inflation rate increase in the U.S is at 8.2%, compared to this market sector which has seen 16.4% increase in prices over the last year... as of Oct 2022, cereals and bakery products were 1.107% of consumer spending. The research should answer, is this price increase coming from the supply, or demand side, and how so?
 

Attached are 2 articles: one from CNN.com regarding inflation, interest rates and the impact they are having on home building. The other is the transcript of an interview from Forbes regarding the overall impact of inflation on the economy in general. Also attached is the latest CPI inflation data from the US Bureau of labor statistics.

After reading the articles and examining the US inflation data consider the following: though economy wide inflation is a macro-economic event, it is the sum of millions of markets and transactions every single day. Each market has a buyer and a seller and each of those transactions is experiencing, on average, a higher price than was experienced last month or last year.

Look at a single line item in the inflation data and decide if it is demand, supply or both that are driving inflation in that particular market. So, as an example if you considered new vehicles:

Expenditue

Category              %

Importance        Sep.

 2021      Aug.

 2022      Sep.

 2022      Sep.

 2021-

 Sep.

 2022

Not adj Aug.

 2022-

 Sep.

 2022 not adj      Jun.

 2022-

 Jul.

 2022 adj              Jul.

 2022-

 Aug.

 2022 adj              Aug.

 2022-

 Sep.

 2022 adj

New vehicles     4.049     160.244 174.598 175.312 9.4%      0.4%      0.6%      0.8%      0.7%

 

New Vehicles were 4.049% of consumer spending in Sept 2022, and there was a year over year increase in price of 9.4%. This increase of 9.4% exceeds the year over year average increase of all prices of 8.2%. What is driving the increase in cost, is it an increase in demand brought about say by higher consumer income? Or a decrease in supply because of microchip supply problems?

You must pick your own example. Do the research into what is driving price increases in your market. Are consumers switching into or out of your market in reaction to higher prices in that markets or other markets. There is not right answer! What I am looking for is your interpretation of the information you have gathered and providing a college level presentation of your results.

Your grade is based on.

40% your economic analysis of the situation in the market you selected

30% your original research into this issue

20% is it a college level paper that answers the question

10% properly footnoting and providing a bibliography of your sources

 

 

New home building retreated in September as rising mortgage rates scare off buyers

New home building retreated in September as rising mortgage rates scare off buyers | CNN Business

By Anna Bahney, CNN

Updated 10:28 AM EDT, Wed October 19, 2022

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02:29

CNN —

Home building pulled back in September, as buyers faced spiking mortgage rates that have made homes increasingly unaffordable.

September housing starts, a measure of new home construction, dropped 8.1% from August, and were down 7.7% from a year ago, according to the US Census Bureau. After a big drop earlier this spring, housing starts had been holding relatively steady up until July when rising mortgage rates spurred more prospective buyers to sit on the sidelines.

Starts bounced back a bit in August while mortgage rates briefly retreated. But since that time, mortgage rates have been on the rise, inching closer to 7%, hitting a 20-year high.

However building permits, which tracks the number of new housing units granted permits, inched up 1.4% in September from the revised August rate, and were down 3.2% from a year ago.

Separately, a survey released Monday found home builder confidence fell for the tenth straight month in October as elevated mortgage rates, ongoing supply chain problems and high home prices continued to make homes less affordable for buyers. The National Association of Home Builders/Wells Fargo Housing Market Index is meant to gauge market conditions and looks at current sales, buyer traffic and the outlook for sales over the next six months.

Homebuilders said traffic of prospective new buyers fell to its lowest point since August 2012, excluding the two-month period in the spring of 2020 at the beginning of the pandemic.

“High mortgage rates approaching 7% have significantly weakened demand, particularly for first-time and first-generation prospective home buyers,” said Jerry Konter, NAHB Chairman. “This situation is unhealthy and unsustainable.”

Little relief in sight

Mortgage rates are more than double what they were at the beginning of the year as the Federal Reserve continued to hike interest rates in an effort to curb inflation.

“This will be the first year since 2011 to see a decline for single-family starts,” said Robert Dietz, NAHB chief economist. “And given expectations for ongoing elevated interest rates due to actions by the Federal Reserve, 2023 is forecasted to see additional single-family building declines as the housing contraction continues.”

Dietz said that while some analysts have suggested that the housing market is now more balanced, with prices cooling off and demand softening, he argued the homeownership rate – especially among first-time and lower income buyers – will decline in the months ahead.

“Higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers,” he said.

The problem is that when mortgage rates retreat after inflation is tamed in the coming years, the US could again encounter an acute housing shortage.

“It is understandable for homebuilders to be cautious in light of slowing home sales and some recent data that indicates softening lease signings for new apartments,” said Lawrence Yun, chief economist at the National Association of Realtors.

But, he said, home building is not keeping up with the rising population.

Builders are adjusting in real time to market conditions, in order to limit the risk of an oversupply that could result in a market crash like that which occurred in the Great Recession, said Kelly Mangold, of RCLCO Real Estate Consulting.

“The housing market as a whole has been underbuilt for much of the past decade and a half, and there is still significant demand for housing overall,” she said. But with mortgage rates as high as they are – and likely to go higher – it is no surprise builders are pulling back.

There’s no turnaround in the cards for this year, said Robert Frick, corporate economist at Navy Federal Credit Union.

“We’ll need to wait for 2023 and hope mortgage rates fall and home price increases cool down – with prices in some hot markets even falling slightly – before conditions swing in favor of homebuyers,” he said.

 

 

 

Inflation Is Causing The Price Of Necessities To Skyrocket: Where Are Consumers Cutting Costs?

Gary Drenik

https://www.forbes.com/sites/garydrenik/2022/08/24/inflation-is-causing-the-price-of-necessities-to-skyrocket-where-are-consumers-cutting-costs/

FORBES_

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Aug 24, 2022,10:00am EDT

 

Inflation hit a 40-year high in mid-2022, causing the price of basic necessities to skyrocket and forcing consumers to determine where their spending priorities lie and where they can cut corners to save cash. Inventory management company Cin7 recently conducted a survey detailing how consumer spending habits are changing and how this will impact the businesses around them.

Cin7 CEO David Leach met with me to discuss the findings, what this means for the upcoming holiday season and how this will impact consumer habits and customer loyalty in the long term.

Gary Drenik: David, thanks for joining us today. As you know, inflation peaked this summer at a 40-year high. How have consumers responded, and how has it impacted their purchasing habits?

David Leach: Inflation causes consumers to prioritize spending by focusing on what’s most important, like putting food on the table or meeting mortgage payments. Shoppers become nervous when they’re uncertain of the future, and a 40-year high is a big deal. People save pennies and store up cash reserves for troubling times ahead. Currently, consumer sensitivity to price is increasing, and they’re spending less on “nice to haves.”

Drenik: Where are consumers restricting spending? Are there any items or activities in particular that they’ve deemed unnecessary at this time?

Leach: Cin7 found the top two spending areas consumers are cutting back on are eating out at restaurants and purchasing non-essentials like clothes and toys. We’re also seeing a decline in sales for food and beverage on a macro level. These industries have already faced immense economic difficulties in the last few years. An additional hit will be detrimental to small and local restaurants and retailers.

This means challenging times ahead for some businesses, depending on the nature of their product or service. We’ll see winners and losers across industries, as we have over the past two years. The companies who come out on top will be those who innovate and are agile enough to evaluate their sales and inventory data to look for trends and pivot accordingly.

Drenik: With the holidays approaching, will shoppers resume typical annual spending on gifts, parties, food, etc. or do you expect they’ll continue cutting costs wherever possible?

Leach: Consumers will continue to spend during the holidays, but I expect to see even more bargain hunting. With a rising population of price-sensitive customers, you’re constantly playing with prices and promotions. Last year, companies started Black Friday sales far earlier than Thanksgiving weekend, with some as early as October. I believe that trend will continue.

A recent Prosper Insights & Analytics survey found that half of consumers, planning to spend less on holiday gifts, are planning to save money on holiday gifts by spending less on everyone. Additionally, almost a third (28.6%) say they’ll only purchase gifts that are on sale. Black Friday will likely be huge this season, and potentially bigger than ever before as it provides the best bargains for holiday gifts, though overall spending per consumer might be lower than in past years.

 

Previous recessions have shown that certain longer-lasting products are seen as an investment and aren’t as acutely impacted as experiential purchases, such as concerts or movie tickets. Legos and board games provide free entertainment at home for years, which is more appealing to the cost-conscious.

Drenik: Consumer behaviors have changed widely over the past 2 ½ years, with the expansion of online shopping and spending patterns fluctuating with each new crisis. Have increased inflation rates led to any big shifts in the ways consumers shop, aside from how much they spend?

Leach: While eCommerce boomed during the pandemic, the slight swing back to brick-and-mortar retail will likely continue considering rising inflation rates and that shoppers are generally comfortable shopping in person again. However, eCommerce has become second nature for the majority of the population, with less-tech-savvy people and older generations accustomed to the online experience. Consumers will be searching for the best deals available to them – whether that’s online or in-store.

As a result, products sold online will need to compete on price more and more. There’s currently a lot of browsing around with consumers making the effort to find cheaper items in person. Alternatively, if a particular item is cheaper online, you’ll see them buy online instead of in person. A potential customer might browse through a small store but actually make their purchase for $10 less on Amazon.

When times get tough, shoppers make purchasing decisions based on a hierarchy of needs. With prices going up on essentials, like gas and groceries, there’s less spare cash for discretionary spending. On top of cutting down on non-essentials, they might make other compromises in their purchases. For example, someone who is passionate about making eco-friendly purchases might instead buy a cheaper, non-sustainable version of their necessities to cut costs.

Drenik: How can businesses adjust to meet shifting consumer behaviors and expectations during times of economic downturn?

Leach: Companies need to compete and win primarily on price. Businesses selling both in-stores and online need to sustainably drive costs and prices down to compete. One way to do this is by adopting digital solutions that support a lean and agile business. Automating time-consuming tasks, streamlining inventory management, and connecting sales channels can help retailers save money and sell products at lower prices than competitors.

Additionally, businesses that diversify sales channels, rather than focusing solely on eCommerce or solely on brick and mortar, will have more opportunities for revenue and attract a broader range of customers. Many small businesses also find success by diversifying revenue through selling products in stores and online at big-box retailers like Walmart and Target.

Innovative technology can help businesses save another valuable resource: time. If companies use automation to reduce employee error and drive operations, they become faster, more efficient businesses. Moving quickly and keeping data current informs strategy for offering promotions and discounts while also allowing you to better monitor competitor prices.

Drenik: How will businesses maintain customer loyalty through inflation and other hardships?

Leach: Businesses are more likely to keep customers long-term if their behavior, decisions, and customer communications display empathy towards the consumers. Shoppers are frustrated and fearful of being impacted by a lasting financial crisis. Companies that use innovative solutions to save time and costs should pass savings down to the consumer when possible – offering promotional discounts, freebies, loyalty programs or innovative subscription options are all good initiatives. There are also digital solutions to improve customer loyalty that support personalized and automated customer engagement based on multi-channel buying behavior and other customer data.

While even tech-savvy businesses might not be able to reduce product prices, they will be able to protect their pricing by stabilizing costs while competitors raise prices. I recommend companies bear the load of inflation costs for the consumer, rather than dumping them on their customers. If you can become the offering that’s $10 less than everyone else, shoppers will prefer your business. Though this might mean some initial added costs for the company, it also means less customer churn and improved loyalty, which is the key to staying afloat long-term.

Drenik: Exactly, everything comes back to protecting customer loyalty through low prices and high-quality experiences. Thank you, David, for sharing your insights.

 

LINK TO USDOL CPI INFLATION DATA:

https://www.bls.gov/news.release/cpi.t01.htm

 

500 words minimum. Due December 18 at 9PM via Moodle. Please make sure the paper is in a .docx or .pdf format when you submit it.