Supply Chain Woes: Navigating Inflation
Supply chains are rolling with the punches in today’s post COVID-19 environment. It’s safe to assume that supply chains are indeed past the peak disruption point in the thick of the global pandemic and global economic shutdown; however, they are not entirely out of the woods just yet…
Supply chain inflation poses a major threat to global supply chain recovery and it is set to prevail for the better part of 2022. How did this happen, you might ask? Last year we experienced an unprecedented shipping crisis with delays never seen before coupled with supply chain bottlenecks that pigeonholed companies leaving them with limited supply. At the same time, consumer demand and spending spiked and companies were forced to increase their prices to protect their profit and to fulfill demand despite operating from a supply deficit. The consequences of the shipping crisis and demand crunch have carried over into the 2022, further exasperating supply chains and gripping the economy.
According to the Bureau of Labor Statistics, the Consumer Price Index gained 7% year-over-year in December of 2021 which is the strongest record of inflation since 1982. Some products have seen even higher price increases like gas and beef. This is a direct correlation and result of the gap between consumer demand and company supply.
Not to fear –– there is light at the end of the tunnel! As consumer spending gradually comes back down to Earth, the Federal Reserve is raising interest rates. Although initially this will increase prices, it is predicted that it will help supply chains by easing the pressure strain by curbing demand for major purchases like a home, an automobile, etc. Although the positive effects of raising interest rates will not be instantaneously felt across supply chains, it is the first step towards alleviating demand by bringing it lower and ultimately reducing inflation and bringing it down to a normal, sustainable level.
The supply chain is healing, but it is taking its sweet time. As we slowly approach full recovery, supply chains need to adopt the right approach to mitigate supply inflation and to rebuild long-term resilience. Discover how supply chain finance can help your company to optimize and free up cash flow and lengthen payments. Contact info@traderiverusa.com today to get started!