February 15th, 2022 – There are two interesting theories on why prices may go down in the coming months. These two theories are promoted widely by prominent pundits, financial advisers, TV business commentators, economists, bankers, stock market mavens and other like-minded folks.

Prices will go down because inventories are presently at an all time high.

High prices will go down as the disruptions caused by the Pandemic go down.

Let us consider the first theory – inventories are at an all time and therefore prices will go down. First, it is not quite true. In December inventories of all unsold goods reached 789.4 billion. That was 2.5% increase over November, but actually that was a decrease over inventories in October, 2021. No matter, it is beyond dispute that inventories were historically high in December, 2021.

That said, BCE (aka Buffalo Chip Express) asks why would that decrease prices in the future? BCE knows the theoretical answer to that question. It goes like this: Because inventories are historically high, sellers of goods will be forced to reduce prices on those goods. BCE admits it may be quite true that having too much inventory of a product at one time may force some sellers to reduce prices in order to sell down those high inventory items, improve cash flow and be able to buy other goods, but BCE would suggest that does alter the fact that those goods were produced at higher prices. And more particularly, that does not, in itself, reduce the future cost prices to replace those products in the future.

So, BCE would agree that high inventories may force some sellers to reduce the prices of some products temporarily, but that does not change the cost of producing new goods in the future, nor does it mean that prices will not again go up in the future for those products. Finally, just having high inventories of some products does not mean they will reduce prices on those products at all. Sellers may just hold those products in stock until they they are sold at the higher prices they have passed on.

The second theory is as the Pandemic and the disruptions it caused wind down, price increases will go down with it. BCE sees 2 problems with this idea:

It is not clear that the Pandemic or the disruptions it caused will go away. While it is clear that the Pandemic is presently winding down from the present winter surge in the U.S., it is not clear or knowable that there will not be further surges or new variants of the Pandemic to cause further disruptions. In addition, it is not clear that disruptions in Asia and Europe and other places around the world will go down and will not suffer further surges or variants in the future.

In particular, it is clear that the Pandemic is surging rapidly in Hong Kong and may spread soon to all of China and that would almost certainly guarantee further disruptions of production and shipment of goods. And if that were to happen, it would add further pressure on prices. It is not clear that even if the Pandemic and disruptions from it declined, there would be any reductions in the cost of goods or the cost of shipping goods. In fact, if the Pandemic recedes and disruptions cease, it may cause further price increases because the reopening of economies cause a major increases in the demand for goods.

Again, people can speculate that prices may magically go down, but they will never know if prices will magically go down until that actually happens.