Don´t pack your bags just yet. Didn´t you hear that prices are actually starting to fall? I have to get this out to my providers, the ones that keep increasing their prices just to check that maybe they pressed the wrong button on their calculators, you know they pressed the + sign instead of the - sign.
I really could not sum this up better than a fellow blogger already has. If you would like to read more about this in detail (and in English) visit Pablo´s site.
If you want to look at the article directly in Spanish you can go here.
10 comments:
Frank, from your own business, what rate of inflation have you seen in the goods and services you have to pay for? Have you been able to pass that along with price increases for your products, or do you have to accept a lower profit margin to remain competitive?
Do you think your product sales would be affected by a major downturn in the Argentine economy? It was very noticeable that shortly after devaluation that certain vendors like Persicco were still doing a very good business. I have my own “Persicco kg” inflation indicator :-)
John
Hi John,
Many of the things we pay for have gone above 30%, this is compared to just about a couple of months ago (not from a year ago). Having said that there are some things that just skyrocketed like pecans and hazelnuts (around 45% and 55% respectively).
We have taken hits in our margins, but there is only so much you can absorb before you have to either throw in the towel or pass it along. Everyone was spoiled with our 30 day notices in the past. Now we can´t do that and I have put everyone on notice that we will start reviewing our prices on a monthly basis and it will be their responsibility to ask for the prices. I just can´t give everyone notice anymore.
I am sure that our sales will take a hit. At least in the beginning of an upward cycle. In the past we found that once the market got used to the new prices the demand started to go up again. When prices fluctuate so much people loose their ability to know the real price of things. We try to keep our prices from changing constantly. In the past we would review our prices only twice a year and in the past year we only raised our prices once. This year, this is our second price increase. This latest increase does not take into account a possible increase in wages. If I were to bet I would bet that the unions are going to press for a raise in salaries.
One thing that helped Persicco as well was that they filled a vacuum that was left open by the mismanagement of Freddo. They used to be THE ice cream vendor in Buenos Aires and then they started to mess around with the quality of their product (probably a cost cutting initiative). Perfect timing for someone to step in. They learned their lesson and brought back their old way of making ice cream. Now you have quite a bit of choices for top premium ice cream when I remember there was only two when I first got here (Freddo and Chungo).
Frank – Thanks for your perspective. One of the reasons I mentioned Persicco, was that were doing an excellent business in coffee/cake, even shortly after devaluation (at least at the La Imprenta location, near where I used to rent an apartment). There was actually an ice-cream vendor immediately across the street from where I lived, but we still went to Persicco because the quality was so much better. I suspect that the Argentine sweet tooth will need to be satisfied, even during the worst of times.
I’ve never quite understood why nuts are so expensive in Argentina. I guess that the pecans and hazelnuts you buy are imported, but walnuts are grown nationally. I routinely bring in nuts to Argentina from the US (especially for my brownies …), along with bulk packs of biscotti. I was surprised that when I first started visiting Argentina I never saw biscotti for sale, but I guess you’ve secured that niche!
John
Thank God for that sweet tooth. I count on that for my business. The fact that when you look at high quality products here in Argentina they do tend to do well and there are not that many or there were not that many and now you see more options in that small segment.
I think that nuts are mostly exported. There are not enough producers. Sometimes the market is left with the need to import nuts. We now plan ahead and buy during the harvest to guarantee our stock of nuts. When we first started, obviously we did not know this and often had to buy imported nuts.
Like you I was also surprised that you could not find a biscotti anywhere (even though they call them Cantucci). I am still surprised that I have only heard of one place that makes cannoli for another example.
Frank - Just another quick question about price inflation.
In the past week I've been reading on blogs that residential gas prices are rising dramatically, and customers are being charged for past usage. I'll be back in BsAs in a couple of weeks, but I can't find any offical information online.
Do you know what the deal is?
Thanks,
John
Hi John,
I vaguely recall having read that somewhere as well but not from any oficial source so I kind of didn´t pay too much attention to it.
Now that you mention it I will ask around since I can´t seem to find it in the newspapers myself either.
Frank, I just found some info about gas price hikes:
http://www.streetinsider.com/Press+Releases/Argentina+Gas+Rates+Hike+Seen+An+Isolated+Case+In+Near+Term/2025124.html
Obviously everything's not sorted out yet. It seems Spain has been exerting pressure on Kirchner's administration.
John
Cool. Thanks for the link!
To play devil's advocate, remind that the inflation INDEX is that, an AVERAGE INDEX, based on a (supposedly) statistically relevant model of income levels and products purchased.
So, that the index says 10% or 5% does not mean that it's the same for *everyone*. In fact, middle and upper classes spend on services that the lower classes do not.
Take private health care, cable TV, or private education. Would it be fair to use increases in those sectors and conclude that the inflation index grew by that much for eveyone?. (I don't have cable TV, for instance).
Remember, I'm just playing devil's advocate, and I'm not very good with examples. This reporter probably did a better job.
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Te recomiendo leer el articulo de Alfredo Zaiat titulado "Inflacion Narcicista", que empieza diciendo:
"Nadie gasta todo su presupuesto anual en lechuga y tampoco en viajar solamente en colectivo. En el primer caso su poder adquisitivo del último año se hubiera pulverizado debido a que la verdurita verde subió 68,2 por ciento, mientras que en el otro se hubiera incrementado en la misma proporción de aumento de sus ingresos porque el boleto no registró variación alguna. Quien mira sólo el alza de la lechuga concluirá que el índice de inflación es mentiroso, que no refleja la realidad y que, en definitiva, es un dibujo del Indec por presión del Gobierno.
En cambio, quien analiza exclusivamente que el transporte automotor de pasajeros en la Capital Federal no ajustó las tarifas sentenciará que existe una inflación reprimida por la agresiva intervención estatal. Cualquier persona que quiera entender de qué se trata un indicador estadístico que mide la evolución de los precios de la economía se dará cuenta de que esos ejemplos son absurdos. Nadie come solamente lechuga o se dedica a viajar todo un año en colectivo.
Se consume una canasta de bienes y servicios diversos, que el Indec mediante una encuesta nacional trata de establecer en promedio, una típica para un momento determinado. Son absurdas también, entonces, varias de las sentencias que circulan por la mayoría de los medios referidas a la inflación 2006.
Se puede coincidir o no con la política oficial de ingresos, siendo una de sus herramientas los acuerdos de precios, pero las ideas de “inflación reprimida” o de que “existen dos, tres inflaciones diferentes” revelan ignorancia sobre cuál es el trabajo del Indec y cómo se construye un índice de precios al consumidor. Y, fundamentalmente, qué representa un indicador estadístico de la economía."
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Also, don't forget there's the "me too" factor. See this blog post of my own commenting on how TALK about price increases sent Cordoba butchers increasing the prices of meat "just in case". That's a curse for Argentina... the "me too" attitude.
http://nerdgaucho.blogspot.com/2007/03/carniceros-admiten-que-aumentan-por-las.html
Fernando,
Thanks for the article and your perspective. I wish I could increase my prices for that just in case scenario. I mean I could for the small clients but then I would be playing around with my credibility.
As for the big clients, they know when something is up becuase they get hit by all the other suppliers out there. If in general they come around asking for 5% increases and I show up asking for 10% then I have better be really good at explaining my pricing. It doesn´t mean that it is wrong. It just means that I may have a different cost structure than the other guys. This is all hypothetical anyway becuase I have no idea how I compare to ther providers for my big clients. No one has told me that I am crazy though so I guess I am either on the mark or coming in below.
I have had clients trying to figure out why a particular price increase was higher than the index and well I tried to explain it and one client in particular wasn´t taking the information too well from a foreigner. I now give hime smaller more frequent increases.
Bottom line is you have to charge what you think is the correct price or else it´s game over eventually.
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