Tuesday, May 8, 2007

Working with Inflation

Today I got a very interesting e-mail from my wife who happens to have the CEO (and production) role of our company:

Friday 6pm the boxes went up in price; Monday 4pm, the plastic bags went up in price (boxes and bags 21%); Tuesday 1pm, the chocolate went up (10%); Tuesday margarine went up in price as well (10%).

These are increases that are on top of what was increased a couple of weeks ago. Yep, it´s not every month anymore it´s within a couple of weeks.

Meanwhile I have clients who demand that they be given 30 days notice for price increases.

What does this mean to me? I will have to spend yet more of my time in meetings explaining why our prices have to go up. I have been preparing the little businesses by telling them that I can no longer give them any forward notice at all regarding price increases and they took it very well. I imagine that I am not the only one telling them this.

I remember when I used to increase my prices once a year and I would get flack from them but not this time. Now I get flack from the big clients and they also require a big investment of my time. At least my business Spanish is getting polished with all of these meetings.

You can be the judge of that though tonight when you listen to the interview at 8pm on 94.7 Radio Palermo.


SFO said...

Frank –

How did your radio interview go last night? I wasn’t able to listen since I had to go to a meeting of the co-owners of my apartment building – two hours of people yelling simultaneously at each other (and they wonder why I can’t understand). This is always the way our meetings end up. Getting a group of Argentines to agree on anything seems to be a common problem.

The multiple, recurring, price increases you are seeing in your business reminds me of the hyperinflation times that have been common in Argentina’s history. What percentage of the increases demanded do you think are solely due to increasing labor costs? If your business is predictive of the economy as a whole, the ripple effect would surely portend a rapidly increasing inflationary trend.

I presume you’re using JIT inventory management, so you don’t have a large buffer of raw materials that would enable you to give much notice to your clients when you face price increases on the items you mentioned in your blog.

You’ve previously mentioned that you stockpile nuts during the harvest season, but are businesses here able to hedge their future needs at an agreed price (with some kind of inflation adjustment perhaps)? Obviously much of the agricultural export market is stabilized with forward contracts, so where is the inflationary pressure coming from?

On my flight into EZE last week, it was obvious that many Argentines were returning with a large number of purchases from the US (and customs were having a field day). Kind of like the “dame doses” of former years :-)


Unknown said...

Hi John,

You are correct. We don´t have a big buffer but we have been increasing the size of orders and decreasing the frequency to try to shave a few pennies that way.

I do not know where the inflation pressure is coming from. Some part is due to labor the other could also be attributed to government policy and speculation. I do know that we are not the only ones.

My clients are all taking the news of future price increases very calmly. They are actually expecting them. Except for the big companies like I mentioned before. They make me explain every little detail of our price increases. They have good employees doing their job. At least I get to generate reports, graphs and they do understand that language very well. It´s great talking to people that have some business school training. You place charts and graphs in front of them and they understand them. I can´t go with that stuff to the little stores though.

The interview went off great. They mentioned that they want to have me on the air again. It was just an open invitation so who knows what will come of that.

I did have a second interview this morning from another radio program. I am going to post about that later today.


Anonymous said...

Hi Frank,
interesting to read about your first-hand experience with inflation. However I am not sure if you are exaggerating a little bit? Although there have been recent doubts about the official INDEC statistics, even a pessimistic view on inflation would be below 20 percent this year. So there is a huge difference to your cited price increases of 10 percent every few weeks.

Don't get me wrong, for sure you know your numbers very well - I am just trying to make sense of the big picture. Probably some prices are rising faster than others, and you may have had bad luck recently...


Unknown said...


Actually it is a good observation to make. The INDEC is actually not that great a source to go to. They have messed up the numbers so much that who knows what the real ones are.

You are right though, some items go up more than others. Since we deal with high quality, high cost items that move up at the slightest inflationary pressure like nuts, chocolate, cheese, etc. sometimes we see exagerated price variations. Believe me, truth can seem stranger than fiction and I am not making any of this up.

It is also tough being a supplier to clients that have signed price controls with the government. They basically take the hit and expect us to share in that hit (costs rise without an increase in sales price). One such client is Freddo and Aroma Café. They have asked us to spread the price increases in steps. The trouble is that by the time you get to the 2nd or 3rd step you have higher costs that were not accounted for before.

We are learning and taking our lumps with this as well. I hope this inflation pressure starts to settle since I really hate talking to all my clients about how I have to raise prices yet once again.