Tool price increases: What is the real cause of the price increase ?

[Clarence Martinn]

Take for example , The Grizzly T10811 Wood Lathe Chuck Set.
That is now $319.00

11 Months ago , when I bought it, the price was $293.95

Now, I read on the forum that prices are going up again. Is it true that the increase, is somewhere around 25 % ? Is that increase correct ?

What is causing the price increases? Can't be labor costs. Labor is cheap in China The cost of Shipping ? The cost of Steel ?

[Frederick Skelly]

Take for example , The Grizzly T10811 Wood Lathe Chuck Set.
That is now $319.00

11 Months ago , when I bought it, the price was $293.95

Now, I read on the forum that prices are going up again. Is it true that the increase, is somewhere around 25 % ? Is that increase correct ?

What is causing the price increases? Can't be labor costs. Labor is cheap in China The cost of Shipping ? The cost of Steel ?

I think global material shortages, shipping backlog, increased demand for Woodworking gear all contribute to price increases.

[Earl McLain]

I don't know the cause, but $319 divided by $284 is about an 8.5% increase on my calculator. Still large for a year, but not 25%--yet!!
earl

[John King]

Clarence - Ask Grizzly. - John

[Ricc Havens]

It's probably related to the higher cost of steel. I used to be in the truck freight brokerage business and shipped a lot of steel around the country. In talking recently with my friends still in the steel processing business steel prices are extremely high.

I also have a neighbor who is a purchasing agent for a local RV manufacturer. Went to dinner last week with him. He said on just one of their camper floor plans the cost of steel for the chassis and framework went up over $300 per unit. Overall with the recent higher cost of wood and other materials that same campernow costs over $1600 more to make than it did last year.

So I am not surprised that tools are costing more.

[Stan Calow]

I've heard that labor costs in China have been steadily increasing as well.

[Ricc Havens]

Another interesting tidbit from my friend in the RV industry. Another division of the company he works for used Gm and Ford chassis for making delivery vans for FedEx, Amazon, etc. The supply chain has been very thin on getting chassis from those manufacturers. Part of the issue is the suppliers to Ford and GM not being able to supply necessary parts. My friend Albert said his Ford Rep said they are having such an issue getting the computer chips for the engine. the rep said in order to keep the assembly line running they install a computer chip into the truck chassis drive it out to the storage lot then remove the chip and take it back into the factory to install in another chassis.

[Stan Calow]

We have both a GM and Ford plant here in KC, and they've both been idle for the last month due to the chip shortage.

[Mel Fulks]

Inflated money. Anybody remember the old tv show , The Millionaire ? John Baresford Tipton didn’t give EVERYBODY a big check .
He didn’t want to cause inflation.

[Stephen White]

ya know monetary policy is only one cause of inflation and the global pandemic is I think going to cause continued inflation for several years for lots of different kinds of products and ultimately probably everything to a certain extent. While some things flourished during the pandemic other things did/have/will come to a stand still. The complicated part of all of this is the uneven effects the pandemic had and is having around the world.

Most people here in my area are starting to get vaccinated and then going on about our business. If a variant comes along that is vaccine resistant hopefully they can fix us up with a booster. Other parts of the country and world not so much and everything is so interconnected now that all of this is probably going to mean almost everything is going up and if companies want to compete for employees then so will salaries.

Long way of saying that I think tools will probably continue to go up for a while and then stay high.

[roger wiegand]

Don't forget the tariffs that have given everyone an excuse to raise prices whether or not they were directly affected.

[David Walser]

There are a number of causes of higher tool prices. Most of them are largely the cause of government policies -- either here or elsewhere. For example, the prior administration imposed steel tariffs, which caused the raw materials from which tools are made to go up in price.

Second, the current administration has taken action to make it harder for the US to produce oil and gas, which has caused energy prices to go up significantly. (This is by design. The policy is to increase energy prices to reduce consumption to reduce the production of green house gasses.) Energy is required to produce and deliver EVERYTHING that is bought and sold. It affects some products and services more than others, but energy is a significant input into the manufacturer and delivery of heavy, bulky, items, such as woodworking tools. (Some will say that Biden's policies are too recent to have had a material affect on energy prices. That's wrong. The price of energy is mostly determined by expectations about the future availability of supplies. If there is expectation of a reduction in supply, energy prices will go up immediately. If there is an expectation of a glut, prices won't go down as quickly -- but purchases will fall almost immediately.)

There are a lot of other causes of price inflation, one of the largest is China's growing market dominance. Twenty-years ago, Chinese firms could only sell their products if they charged rock bottom prices. If they didn't charge such prices, we would simply continue to make the things ourselves. Today, the USA and Europe have largely abandoned making stuff. We no longer have the ability to simply make the things we are buying from China. It might take years to rebuild the manufacturing capacity -- depending on the item we're talking about. This gives China a lot of market power -- which the country is perfectly willing to use to its advantage. Witness its threats to withhold medical supplies during the pandemic if we put too much blame on China for the pandemic. With its market power, China can demand higher prices. The country would have charged higher prices 20 years ago, if it could. Today, it wants to raise prices to the point it maximizes its profits without causing us to rebuild our manufacturing capacity.

Lastly, (as in the last thing I'll mention, not the last thing that causes price inflation) we have the Fed flooding us with cash. Easy money has all-but destroyed the bond market (why buy bonds when they pay so little in interest?), which has driven a lot of cash into the equity and real estate market. All that extra cash has caused the price of stocks and real estate to sky rocket. It's also causes, over time, the value of the US dollar to decrease. We haven't noticed it too much because the value of most other currencies have also decreased. However, a dollar will buy you less of just about anything sold today compared to awhile ago. The package of X might still cost as much, but the package contains less product and more air.

[roger wiegand]

The inflation adjusted cost of oil today is about the same as it was in the early 1970s. There have been some wild swings since then of course, but overall the price of oil, as a proxy for energy, has remained pretty constant over the last 50 years on a time-averaged basis, see the oil price chart below:

Screen Shot 2021-06-08 at 6.57.58 AM.jpg

I haven't done the linear regression, but I'll wager that the slope of the best fit line to those data from 1970 to today is very close to zero, albeit with a poor r^2.

Of course you could argue that the price of energy drives the inflation number, which has averaged 4%/year since 1970.

[Richard Coers]

I find it very humorous that everyone needs to know the exact reasons why importers and sellers of tools and machinery have raised prices at this point of time. Has to be a phenomena of social media or just computer provided answers to so much. If you look at some old 80s Fine Woodworking Magazine ads, you'll realize what a bargain you are still getting.

[David Walser]

Roger -- I mentioned a policies from the prior administration and from the current administration because I didn't want this to become a political debate -- with all the nastiness that today's political conversations too frequently generate. You can agree or disagree with the wisdom of Trump's raising tariffs. There are decent arguments on either side of the question. However, I hope no one will argue that raising tariffs tends to increase inflation.

Similarly, Biden's energy policies will, by design, lead to higher energy prices -- with the inflationary consequences described above. Again, you can agree or disagree with the wisdom of Biden's energy policies. There are decent arguments on both sides of the question. I had hoped no one would argue that Biden's energy policies were not inflationary. But, since your comment could be read as arguing that Biden's energy policies are not inflationary, please allow me to offer some additional color.

The cost of energy increased under Obama. Again, this was by design. His goal was to reduce energy consumption and thereby reduce our impact on the environment. Some argue that higher energy prices are a small price to pay for protecting the environment. Again, I'm not going argue for or against that proposition. I'm simply noting that was the position of the Obama Administration. The only reason these policies didn't result in general inflation is because of the very low growth of the economy coming out of the 2008 recession -- slow growth that lasted for the entirety of Obama's term of office. That's one way of fighting inflation -- reduce demand through anemic economic growth.

Trump's energy policies differed. He was in favor of energy exploration and development. While Obama said we could not drill our way into energy self-sufficiency, under Trump we did just that. This resulted in markedly lower energy prices, which was a boon to the economy.

Biden is returning to Obama's energy policies. The chart you posted ends in 2020. Energy prices, which are based on future expectations, started to rise immediately after the election. Today, the price as of the end of May 2021 was just over $85. Part of this price increase is our coming out of the COVID induced recession. Part is caused by Biden's energy policies and the expectation prices will return to the 'norm' during the Obama years. From an inflationary perspective, this go round, there is a lot of pent up demand. Thus, it is unlikely that the inflationary effect of increased energy prices will be swamped slow growth reducing demand. That may be the long-term result, but in the short term, sellers are feeling free to raise prices.

Will Biden's energy policies return energy prices to Obama levels? I don't know. However, I have a number of clients in the energy industry and that's the way they're betting.