How The Global Supply Chain Crisis Is Worsening Inflation
People who lived 60 years ago have seen energy scarcity, empty supermarket shelves, and long lines of cars waiting at the gas station. Today’s global supply chain crisis is worsening inflation and bringing back this type of crisis.
This article is written by Rudi Stalmans and featured in the 2022 autumn edition of Tank News International. The title of the article in the Magazine is “How The Global Supply Chain Crisis Is Worsening Inflation”.
In early August 2022, I checked with my family in Belgium to hear that their utility bill went up by more than 300%. The costs of filling up the car are also climbing higher and higher. Since properties are getting more expensive to build, fire insurance premiums will soon increase. In recent months the sign “this product is temporarily unavailable” has also appeared more frequently in Belgian supermarkets. Suppliers see price increases and come knocking on the supermarkets’ doors a few times a year to adjust prices. Since COVID-19 and the war in Ukraine, raw materials have become more expensive, energy prices have skyrocketed, and various packaging materials such as plastic, glass, and cardboard have gone up in price or are unavailable. Supermarkets are not very keen on increasing prices, which more and more results in empty shelves. Empty shelves often trigger hoarding, so shortages worsen the situation. While this is a story about Belgium, it is a situation that people experience and recognize globally.
Many people are reducing spending, such as cutting back their car usage and canceling vacations. Many have accumulated debt or turned to family for help in response to higher costs. Many are cutting down on fuel, food, and shopping. There is an extensive impact on society when the cost of living rises. Especially young people and households with lower incomes will have to start cutting costs faster to survive.
Huge supply chain issues and inflation
Our global economy is facing extraordinary challenges. Not only have costs gone up, but many products are also missing from store shelves because they are stuck somewhere in the supply chain. Global supply chain congestions are still present with COVID-19-related deadlocks delaying loaded containers in various ports in China, Europe, and the United States. Consequently, these supply shortages are pushing up inflation, increasing the cost of consumer goods from food to vehicles to materials.
As inflation increases, so does the probability of a recession, a period of temporary economic decline during which trade and industrial activity are shrinking, commonly identified by a fall in GDP in two successive quarters. As more people dig into their savings to cover the growing costs of goods and services and start to spend less is a clear sign of an emerging recession. Rising inflation will ultimately lead to deflation as consumer spending drops dramatically in time due to higher taxes, excessive debt, and increased redundancies.
The supply chain crisis and inflation have huge negative impacts and consequences. While congestions in global supply chains lead to higher logistics costs and freight rates, there is also an increase in operating expenses related to inflation pressure, utility prices, and labor and material costs. More impacts include capacity constraints, longer lead times, and delayed orders. The effects of inflation on the supply chain cause a domino effect on the price of consumer goods. The final consumer will take the burden and absorb higher supply chain costs.
Continue to read part 2 of this article – “Three Examples Exposing Complex And Vulnerable Supply Chains“.
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