Jun
17
The Pig in the Python, from Eastsider
June 17, 2008 |
Here's from today's (May's) producer price report:
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Greg Van Kipnis replies:
Understanding the "pig" in the python phenomenon, as Eastsider refers to it, is instructive.
The point he is implicitly making is that as the lump in prices (the pig), stemming from energy and ag prices, works its way through each stage of value added in the US manufacturing/services production and distribution machine (the python), raw material prices diminish in importance.
Unit labor costs, offset by productivity gains, and profit margins become the dominant component of prices in the final consumption market. In our competitive markets, labor costs and profit margins are "compressible" and productivity gains are "irrepressible." Then there is the not so small matter of substitution effects to lower prices even more. As the cost of one ingredient rises, every businessman will press his suppliers to either lower their prices or find other substitutes for the other ingredients that were purchased earlier. In the end, consumer prices (and industrial prices) become "well contained."
Comments
4 Comments so far
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the impact on public will diminish as the new prices become the norm, but that doesn’t stop the python to stay swollen and get an indigestion. those profit margins you breeze so easily over as if they’re for granted, and/or market share, will take care of it.
this outtake from dept of higways current press release
“Americans Drove 1.4 Billion Fewer Highway Miles in April of 2008 than in April 2007 While Fuel Prices and Transit Ridership Are Both on the Rise
Sixth Month of Declining Vehicle Miles Traveled Signals Need to Find New Revenue Sources for Highway and Transit Programs, Transportation Secretary Mary E. Peters Says
WASHINGTON – At a time of record-high gas prices and a corresponding surge in transit ridership, Americans are driving less for the sixth month in a row, highlighting the need to find a more sustainable and effective way to fund highway construction and maintenance, said U.S. Transportation Secretary Mary E. Peters.
The Secretary said that Americans drove 1.4 billion fewer highway miles in April 2008 than at the same time a year earlier and 400 million miles less than in March of this year. She added that vehicle miles traveled (VMT) on all public roads for April 2008 fell 1.8 percent as compared with April 2007 travel. This marks a decline of nearly 20 billion miles traveled this year, and nearly 30 billion miles traveled since November. “
excuse me, but why do comments require moderation?
[Editor: all comments on Dailyspeculations.com require the approval of a moderator, and they may be edited for removal of scatological, noisome or ithyphallic vocabulary].
Mr GVK’s comment; Unit labor costs, offset by productivity gains, and profit margins become the dominant component of prices in the final consumption market”
Raises questions; some of which are related to use by application, the driver miles driven is a comprehensive data point that crosses applications, and supplies information about the important aspect of missing information. Human Behavior includes choice, and in this case its a choice to make the trip or not, consolidating energy use to factors, not measurable or forcastable accept as they relate to ways human behavior can curtail consumption, by consiously operating as counter programming accepted logics. Speculation is a wayward non connected labor cost, producing productivity for the speculator, but casting feedback onto the utility complex as adjacent compounding of the factors of production. This adjunct activity will alter human behaviors to change the metrics of calculation, without respect too normal consequences associate with your surmise.