Inflation Continues as Government Aims to Control Supply Chain Issues

Inflation, largely caused by global supply chain issues, has continued to cause pain for consumers both in the US and across the globe. In the US, prices rose at annual rate of 5.4% in September, the fifth straight month of inflation over 5%. In Germany, inflation hit a three-decade high, largely fueled by rising energy prices.

This inflation, which was widely characterized as transitory and temporary earlier this year, now appears more permanent as supply chain issues remain difficult to resolve. Labor shortages, combined with pent-up demand from the pandemic, are some of the largest contributors to this.

The most visible manifestation of the supply chain issues are the dozens of container ships sitting off the coast of California to drop off their loads at ports. While the Ports of Los Angeles and Long Beach have promised to transition to 24-hour workdays, it would take months for the backlog of goods to be processed.

Adding to this is the shortage of truck drivers within the US to move the goods from the coasts throughout the country. According to the American Trucking Association, around 80,000 truckers are missing from America’s highways, and they claim the problem will grow worse of the coming decade. Several factors have been attributed to this shortage, including dissatisfaction over pay and working hours, legal and regulatory restrictions, and resistance of mandatory vaccinations and testing.

Other factors contributing to the inflation are the large amount of monetary stimulus from central banks during the pandemic, leading to calls to raise interest rates to reduce the money supply and reduce inflation. Concerns over negatively affecting economic have made economic policymakers wary of taking this step.

 

Rising Prices Raise Inflation Concerns

The Federal Reserve reported that the personal consumption expenditure index (PCE), which measures the prices of consumer goods minus food and energy, rose at a 3.1% annualized rate in April, an increase from 1.9% in March. This was higher than the expected 2.9% increase.

If one were to include food and energy prices, inflation rose to 3.6% in April, up from 2.4% in Match.

The Federal Reserve has tried to allay fears of rising inflation, blaming it on supply-chain bottlenecks and the large fiscal stimulus, which they believe are temporary factors. In addition, the inflation is starting from a relatively low base line, as price increases were low during the coronavirus lockdown and related economic downturn.

The Biden administration, which has proposed trillions in additional spending, has signaled they believe that they can continue the large amounts of fiscal stimulus without drastically raising inflation. Republicans have countered that the additional money pumped into the economy could lead to even higher prices.

The US is not alone in facing inflation risk. Germany reported a 2.4% inflation rate for May. Spain also experienced the same inflation rate for May.

Markets overall have responded negatively to the news of increased inflation. While US markets have stabilized in the past few days, increased volatility in equity markets worldwide have continued. Cryptocurrency markets have also seen sharp declines from their previous highs, though other factors besides inflation worries are likely at play.

 

Coronavirus Cases Surge as US, Europe Face Likely Second Wave

The coronavirus pandemic has again shifted into another phase of heightened infection rates, with the United States reporting record case numbers, with Wednesday seeing over 80,000 new reported infections. While the US has remained the country with the most cases throughout most of the pandemic, European countries are experiencing what is being described as the ‘second wave’ of the epidemic, leading to a new series of restrictions and lockdowns. French President Emmanuel Marcon has announced a new one-month lockdown, and Germany’s federal and state governments have closed bars, restaurants, and most forms of public entertainment.