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Thursday, February 17, 2011

Why inflation is not a big deal yet

At least in developed countries...
Did you know that if wheat prices go up 100%, this will only translate into a 30% increase in the price of flour and a much lower 10% increase in the price of bread...

Remember.

100 / 30 / 10

2 comments:

  1. I don't understand. If wheat prices double, how can flour producers only rise their rates by 30%? I can't imagine their profit margins are high enough to be able to absorb a price hike as extreme as that.

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  2. There are other costs that the miller incurrs when making flour...
    The P&L of the miller includes:
    Wheat
    Transportation
    Depreciation of Machinery
    Labor
    Admin Expenses
    etc...

    Turns out that wheat is not that important...

    The same can be said (I think) about cotton and a t-shirt

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