Deflation is great for consumers looking for bargains. It’s not quite as pleasant for the merchants providing those bargains.
Companies in the food businessparticularly supermarkets and food distributorsare hoping to see some price appreciation after a year of wrestling its evil twin. Deflation puts sellers on a treadmill, forcing them to sell ever-more products at less price for the same revenue. It also saps profits, as the merchants must continually cut fixed costs, not an easy thing to do.
The impact of persistent deflation will be clearer Thursday as Sara Lee Corp., food processor Bunge Ltd., Kellogg Co. and Burger King Holdings Inc. report earnings. Their view of any moderation in downward pricing and whether consumers have stopped trading down will bear close watching.
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