Excerpt from Ohio Economic Development Associaiton
Um, excuse me, is now an okay time to talk about inflation? We have been reporting here during 2021 that consumer price index increases seen in year-over-year measures each month were not of concern to the Federal Reserve and most economists. Um, that view may be changing as the Consumer Price Index rose 5.4% in September from one year ago.
Those same officials are worried as rapid price increases, seen each month for several months this year, has consumers paying more for meat, eggs, gasoline, furniture, and rent. The latter cost – housing rent – has officials worried the most, as it is an important indicator of inflation and once rents increase, they tend to stay high for lengthy periods.
The Federal Reserve, as the nation’s central bank, has two primary tools at its disposal: (i) purchasing municipal bonds to contribute to a robust market for public sector lending to infrastructure and development projects; and (ii) manipulating the baseline interest rate charged on all lending. Currently, the Fed is purchasing approx. $120B/month in municipal bond debt and holding interest rates near 0%. Either or both approaches could change; the Federal Reserve Board indicated last month it may commence slowing its purchase of municipal bond debt in November or December. (The Fed has indicated it would prefer to first, reduce municipal bond purchases before second, raising interest rates.)
Notably, certain quarters tend to watch a so-called “core” index of inflation, which removes the prices of food and fuel – prices that can jump on a daily basis, seemingly on a whim. And this core index shows consumer prices to have climbed 4% in 2021, with a lower jump in September (0.2%) than measured by the CPI. “I don’t think there’s any reason to panic,” noted one economist who watches this latter index.
Irrespective of which indices are tracked, much of the consumer price increases in 2021 can be traced to….
Supply Chain Woes: Dubbed the Great Supply Chain Disruption, cargo freight tie-ups at ports around the world show no sign of abating. Running out of places to put containers of clothes, shoes, electronics, and other consumer goods is an acute reaction by the global economy in response to the COVID-19 pandemic.
Once viewed as a momentary hiccup in the supply chain, many are now questioning whether the pandemic has altered commercial behavior for the long-term. Point-and-click online purchasing of everything from furniture to groceries may be here to stay. And so is the supply chain congestion.
Approximately 13% of the world’s cargo shipping capacity is tied up by delays. In recent reporting, the chief executive of the Georgia Ports Authority stated, “the supply chain is overwhelmed and inundated…. Everything is out of whack.”
The effects are enormous, with Germany’s industrial economic output lagging, rising inflation concerns among central banks across the globe, and U.S. manufacturers waiting an average of 92 days to assemble goods from shipped parts and raw materials.
The contributing factors are interdependent and complex:
- Shipping containers are in short supply in China;
- Products and raw materials are stuck in the wrong places;
- There is a shortage of truck drivers to move the goods; and,
- COVID continues to wreak havoc, as recently seen in Vietnam’s near-total shutdown for several months this summer due to widespread outbreak of the disease.
On October 13, President Biden announced the Port of Los Angeles would begin operating on a 24-7 timetable, to help dislodge the glut of backlogged shipping containers.
This economic factor, in turn, is related to…
Workforce woes: The nation’s workforce shrank in September, with 3 million fewer people looking for work than prior to the onset of the COVID-19 pandemic; a record 4.3 million people quit their jobs in August. The steepest drop in workers has occurred among the older population; many such workers simply retired. What’s the deal?
Rather than single-answer, fits-on-a-bumper-sticker rhetoric offered by talking heads from the two political parties, all the following, interdependent, reasons appear to be at play:
- Lingering health crisis – with some workers still deeming in-person work as dangerous; and even as those jobs become more appealing, workers may be weighing whether such jobs are worth the risk;
- Savings in the bank – trillions of dollars remain in savings from the pandemic as consumers held off spending on vacations and dining; these savings have allowed workers to hold out for more desirable jobs;
- Psychology – the pandemic caused many workers to rethink their priorities and directions;
- Glut of open jobs – workers see leverage in waiting for better offers; and,
Child care issues – even with schools back in-person, parents of younger children are struggling to find care (given the child care industry’s own bumpy road to recovery).