Inflation Rates Ease, But Long-Term Contracts Keep Prices High
With inflation rates easing and shipping costs dropping along with several commodities (not eggs), consumers may be wondering why they haven’t seen a noticeable price difference yet. Blame it on supplier contracts.
A typical procurement practice is shoring up supplier contracts in advance, which means prices could hold for several months.
The longer high prices continue, the greater the risk of consumers tightening their wallets and the U.S. entering a recession. So, it’s a tight-wire balancing act that increased interest rates alone won’t fix. Will businesses begin to pass along price cuts to consumers, or are they looking to recoup profits and take while the getting’s good? The answer may not be so simple.
Edmund Zagorin, Founder & CEO of predictive procurement orchestration platform Arkestro, examined the situation and said several factors might keep high prices around for a while.
“I think the reason that we haven’t seen prices come down for many industries as much as for macroeconomic indicators, things like the price of oil, the cost of ocean freight shipping, is that for many companies actually getting a price decrease and translating that into cost reduction or cost savings is a process driven by people and many procurement and supply chain teams.
Labor shortages or challenges orchestrating or operating on core tasks. And if you have to choose between getting mission critical supply to show up on time and assuring it versus asking suppliers for price decreases, you will do the thing that empowers your business stakeholders and make sure that you are delivering for customers, which are all related to operational supply continuity and supplier relationships. So is the economy leaving money on the table in terms of inflated prices? Absolutely. But I think it’s also being done with an abundance of caution and thoughtfulness where many teams have simply scarce resources to allocate to forwarding communications to their suppliers.
We also see that’s an area of significant interest as recession indicators tick up in the economy as companies are focused on making sure that they’re able to stay profitable while costs are coming down on their sell side. So that’s an area where we’re seeing just a tremendous amount of attention and interest and curiosity coming through.”
Article by James Kent
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