The tide of price over volume

my fishing friend sam rimes has spent much of this year furthering a thesis on “Price over Volume”; I found it a compelling narrative, fitting very well with an aspect of inflation that I had originally underestimated: “Greedflation.”

He Price over Volume The thesis is both compelling and understated. I hope you find his opinion encouraging… -Barry

Price over Volume remains a key theme this earnings season with PG’s earnings report just the tip of the iceberg. As a reminder, this has been one of PolyMacro’s topics for the past year.

It is still early in the current earnings season. But the persistence of the PoV narrative is becoming almost comical. The amount of price that flows through the system to consumers is pretty obscene. Pushing the 10% price in P&G with a relatively small retracement in volumes (-3%?) makes for a hard argument that there is a disincentive to continue to find that breaking point of elasticity. And P&G doesn’t seem to have found it yet.

And the current figures from the S&P Global PMI serve to reinforce the PoV narrative. Manufacturing companies? pushing the price. service companies? pushing the price.

And taken together, the rebound in demand is causing a resurgence of price pressures that cannot be ignored. If the S&P PMI report proves correct (reaccelerating inflation), that’s going to be very problematic for risky assets that have become more comfortable with a Narrative of “walk to pause”.

Companies say that prices are rising and surveys confirm it. It should also not be ignored that this survey is tracking the banking scare.

When you combine the P&G narrative (“We have pricing power and now we know it”) with the FOMC’s biggest fear (utilities inflation), it’s not hard to see what happens next. There is little in the way of relief that is coming for the consumer.

This is not the same economy as the pre-Covid era. This is the economics of “push the price” and find that marginal dollar.

There was, there was, a rational argument for a less aggressive point of view to pass through the system. Following the SIVB debacle and the subsequent funding pressures experienced by some regional banks, the stability of the financial sector was at risk. That was supposed to be a drag on the US economy and inflationary pressures.

But it turns out that’s just not what’s happening.

There is a feeling that the bank scare has solved the inflation problem. And, while there are theoretical reasons to believe this is the case, it has not been shown to be true in earnings so far. United Airlines called it a “two-week” headwind, and there have been few other consumer-facing ones even acknowledging it.

And Pepsi, the one company that wasn’t supposed to be able to raise prices due to direct competition from KO, is one of the most obvious culprits for PoV.

The acceleration in prices in general, but particularly in Pepsi and the like, is staggering. It is indicative of the current corporate mindset. There is very little chance of finding the elasticity of demand. And, at the moment, there are many excuses to find out.

There is a war. There is a labor shortage. Those are good excuses to raise prices and not worry about volume. And that is the world we live in. The volume doesn’t matter. The price does.


Samuel Rines is the managing director of Corbu, Samuel Rines is an analyst of all things economics with a focus on how “micro meets macro”. Sam is the author of “After Normal” and writes frequently on the cross section of the economy and markets.

Samuel Rines | Managing Director

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