Global supply chains are overloaded and undisturbed
By Karl Smith / Bloomberg Opinion
The first step to understanding “the great supply chain disruption of 2021″ is to recognize that the phrase itself is not entirely accurate. Supply chains are not so much disrupted as they are overburdened, and the effects are more national than global.
This understanding has implications not only for US consumers, but also for the US Federal Reserve. This means that inflation is transitory and unlikely to spread to the rest of the developed world. So the Fed and other banks aren’t expected to raise interest rates in the near future – and consumers don’t have to worry that products like toys made in China are still expensive.
Granted, there have been specific supply chain disruptions related to COVID-19 that have led to reduced inflation. Overall, however, inflation is fueled by rising energy and transportation costs.
Container shipping rates, for example, were more than five times higher last month than they were in September of last year. To make matters worse, overall congestion rates, especially in US ports, were as high as 80%, meaning there were four times as many ships waiting for a berth than moored at one time. given.
This congestion is mainly the product of a considerably higher volume. Retail sales in the United States soared in March and are now about 20% higher than they were in December 2019.
In contrast, retail sales in Europe only increased by 4%. Likewise, in Antwerp and Rotterdam, congestion rates were just over 20% this month.
This difference is reflected in the rate of inflation. In the eurozone, prices rose only 3% year-on-year last month, compared to 5.4% in the United States.
In addition, core inflation – which does not take food and energy prices into account – rose only 1.6% in the eurozone, compared to 4% in the United States.
What about the energy? The US energy consumer price index rose 24% year-on-year last month. The average price of gasoline has increased by more than US $ 1 per gallon over the same period.
However, the problem is not on the supply side; thanks to the shale revolution, the United States can produce much more crude oil today than it could in the mid-2010s. The problem is that the American shale oil industry has been hit hard by the collapse in demand due to the pandemic and uncertainty about the duration of the crisis.
Over the past eight months, demand has picked up in spurts. However, with little clarity on future demand, drillers struggled to find financing. It is only now that oil has surpassed US $ 70 per barrel that the number of rigs has increased. It would take some time to completely rebuild operations, but the limiting factor was and remains the uncertainty of demand.
While the surge in energy prices is a global phenomenon, the rise in base prices is unique to the United States and driven by the sharp increase in retail sales in the United States. This jump is almost certainly the result of the stimulus that the US economy received last year.
Exceptionally high inflation in the United States is a phenomenon on the demand side. Nonetheless, it would be a mistake for the Fed to try to bring it down to the level of the rest of the developed world.
Basically, as European labor markets tighten, they are nothing like the US labor market, where record openings could lead to fundamental changes in how employers operate. These changes are a potential source of opportunities for workers and productivity growth throughout the economy.
To the extent that the inflation boom that the United States is currently seeing is the result of a fiscal stimulus, it would start to fade next year. To the extent that firms succeed in saving on labor, the resulting productivity improvements would also reduce inflationary pressures. The result is that the supply chain situation will likely be much less dire a year from now.
Karl Smith is a Bloomberg Opinion columnist. He was previously vice president of federal policy at the Tax Foundation and an assistant professor of economics at the University of North Carolina. He is also the co-founder of the economic blog Modeled Behavior.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
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