We’ve discussed in the past how trillions of dollars in government “stimulus” money has goosed the inflation monster into action, and we’re seeing the results now on our supermarket shelves.
However, there’s another angle, and that’s plain and simple corporate greed. There are far too many companies out there who’ll gouge the market for the highest price they can get, irrespective of whether or not there’s economic justification for that price. “Make hay while the sun shines”, is their motto, and they do so at our expense. They will, of course, deny that they’re doing that, and blame “input costs” or “market conditions” for the price increases – but we all know what’s going on. They’re in pursuit of the Great God Profit, and that’s all they care about.
The effect of their greed is, of course, visible in the overall inflationary climate. Wolf Street picks up on some of its effects, as well as those caused by government intervention in the markets.
In the US, where consumer price inflation is now surging at the hottest rate in years, input prices for companies have exploded, which will further transfer into consumer prices down the road.
The Producer Price Index for final demand, which is an indication of input price pressures that companies face, and that they’re trying to pass on to their customers, spiked by 1.0% in July from June and by 7.8% year-over-year, according to the Bureau of Labor Statistics today, by far the highest rate in the data going back to 2010:
And the ocean freight rates charged to ship containers across the world have exploded. Drewry’s composite World Container Index in the latest week, reported today, rose to $9,421 per 40-foot container, up by 358% year-over-year (chart via Drewry):
Specifically, rates to ship a 40-foot container in the week through August 12 from Shanghai to:
- To Los Angeles: $10,322 (+241% year-over-year)
- To New York: $13,505 (+285% year-over-year)
- To Rotterdam: $13,653 (+636% year-over-year).
These are astounding freight rates – to be passed on to consumers just for the holiday season. Makes you wonder if the big container carriers aren’t engaging in some classic price gouging. Why? Because they can. That’s what inflation is all about: Companies get away with raising their prices whatever the reasons may be. And those higher prices become costs for the next company, and they get passed on further.
The other way it’s less costly, but also a lot costlier than it was a year ago. For example, from Los Angeles to Shanghai: $1,461 per 40-ft container (+182% year-over-year).
. . .
These pressures in the supply chain and transportation systems that make supply chains work didn’t come out of nowhere. They came from a hyper stimulated economy, to a large extent in the US, where the government and the Fed threw many trillions of dollars in all directions that then needed a place to go. And some of it ended up getting spent on goods that are mostly manufactured overseas.
This mix contributed to the beginning of an inflation spiral. While some of the issues will eventually be resolved, these higher prices have led to higher wages that are now further pushing up prices, and companies are raising prices to deal with higher wages and higher input costs, and there are all kinds of signs that the whole cycle is anything but “transitory,” especially with the massive fiscal and monetary stimulus still raging – under these conditions!
There’s more at the link.
Do note, in the excerpt above, the cost of shipping a container from China compared to the cost of shipping one to China. Same distance, same bulk, but wildly different costs. Shipping companies are doing it because they can. Their customers can’t turn to anyone else to replace their services.
Sadly, this is now having severe repercussions in smaller shipping markets around the world. From Africa, from South America, and from smaller Asian countries, we’re hearing reports that ships are calling at their ports less frequently, because the demand on major trade routes between China, the USA and Europe is so strong. What’s more, there are fewer containers available to serve smaller markets, and the suppliers from whom they normally buy are no longer selling to them because they can make so much more money selling to bigger markets. Shortages of critical items – spare parts, medicines, even food – are thus becoming more frequent in smaller countries.
We seldom think of our government’s policies, and our economic activity, affecting other nations on the far side of the world, but that’s the effect they’re having right now. It’s pretty much inevitable. Disruption and economic turmoil aren’t insulated from the rest of the world. They spread like a virus, all over the globe.