Will It Really Be Transitory ...
Inflation is set to surge this Autumn. Business leaders are warning of a perfect storm. Problems created by Brexit, labour shortages, the pandemic and the pace of global recovery are forcing prices higher.
The cost of tomatoes has doubled in the past year, vegetable oil
is at the highest price in over thirty years. It hasn't been this high since it was stocked in the local chemist shop.
Energy bills are rising. Oil continues to trade above $70 dollars.
Natural gas prices are soaring. Prices have risen to over 130 pence per therm compared to 10 pence last year. That's bad news for manufacturers around the world, from China makers in China, to patisserie peddlers in Paris, apparently.
Sugar and Steel manufacturing is affected by increased costs. Then of course there is the challenge of shipping. That's assuming you can get book a container to make the delivery. The Baltic Dry Index hit a ten year high last month.
Shipping container rates from China to the US and Europe have surged in recent weeks. In early August, shipping rates for the China-US East coast route topped $20,000 compared to just $5,000 dollars at the end of last year, according to Freightos, the online market place for international shipping.
Want to ship to Europe from Asia? Prices have increased from $2,500 dollars per container to almost $15,000 in the course of the year. Then once in the UK, you will need a driver. With a shortfall of almost 100,000 drivers according to the RHA, pay rates are escalating to £50,000 per annum in some cases.
Copper prices may have eased back from record highs but aluminium and nickel have take up the price hike challenge. Aluminium prices increased to $1,600 dollars per pound this week, compared to just $800 dollars at the start of the year. Cans and chips will cost more. TSMC announced a 20% hike in semi conductor prices as car production stalls.
In the UK, average earnings increased by almost 9% in June. Private sector earnings increased by over 10%. Construction earnings increased by 14%.
So is inflation always and everywhere a transitory phenomenon? The Bank of England expects inflation to peak at 4% later this year, before returning to target towards the end of the year, as the disruption impacts unwind.
Retailers are warning prices are set to rise and soon ... but some manufacturers are warning of a reluctance to pass on cost increases at the risk of losing sales.
Next week, we will examine in detail the prospects for inflation as we update our inflation models and chart book. The implications are not quite as bad as this week's update may suggest ...
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