Jan. 21, 2022

Even Tide Detergent Is Going Up In Price...But Why?

For as long as I can remember Tide, has been the way the Reavill Family washes their clothes. It's the detergent that my grandmother used, and the detergent that my mother used.

And we weren't alone. It seemed when I was growing up, that everyone used Tide. Going to school smelled like an aromatic advertisement for this very American Brand. Because all the boys and girls had that distinctive “Tide” smell.

For 185 years Procter and Gamble, the company which makes Tide, has been the dominant household products maker in the country, if not the world. P&G have their finger on the pulse of the American consumer.

And so, when we see big changes announced by Procter and Gamble, we can bet that there are some big changes afoot for almost everyone.

On Wednesday, P&G announced their latest earnings. And at the same time, they announced that they would be raising the price of most of their household and other products.

Now, this was no accident. For anyone who could read their income statement, the reason for this pricing change became readily apparent.

So in reading down their income statement, we see that sales were up 6% for the quarter. That's good. But then, what's this? costs were up a whopping 15%.

Procter and Gamble, one of the most carefully managed companies around, was caught with exploding costs of production.  The ingredients and materials that go into the P&G Products had simply got away from them. To say nothing of the cost of transportation, shipping, and packaging.

Put it all together and P&G just saw a $1.4 billion dollar jump in the cost to make Tide, and all their other products.

That's what real inflation looks like when you're the largest consumer company in the world.

Now, an out-of-the-blue inflation expense of $1.4 billion would be enough to sink most other companies. Sending them into at least a loss for that quarter.

And indeed Procter and Gambles's operating income for the quarter was down over $200 million dollars. However, management was able to reach back and recover some non-operating profits, no doubt selling an asset or two. And so they were able to show a profit for this last quarter.

And so the inevitable result will be that we'll all have to reach down a little deeper in our pockets, the next time we buy that box of Tide. To be precise, we'll need to pay 8% more for Tide and virtually all the P&G household products. It's the way it has to be.

You see, it's the way inflation works. It's perhaps the most sinister force in any economy. Sneaking up on you when you least expect it. Inflicting excess expense, whether you can afford it or not.

If we really understand what happened to Procter and Gamble this quarter, we will realize that the company was so hard hit by rising costs, that they were really operating at a loss.

Something that no matter how large, and how long they've been in business. No company can long survive by operating at loss. Procter and Gamble have no choice, if they want to remain in business, they must raise prices. And do it now.

For us as consumers, the result is the higher price of Tide. Something that is no doubt a burden for many.

But neither Procter and Gamble nor the retail buyer has a choice. They must both pay up.

Such is the burden that we must all now face. The pernicious, sinister burden of inflation.