The pandemic was the big story last year, and there’s some speculation that this year’s big story will be cost increases because of it. Doesn’t it feel like whenever we finally seem to be getting close to talking about something other than the pandemic, we get hit with yet another new ripple effect from it?
In this case, the cause mostly seems to be due to last year’s shutdown or slowdown of manufacturing overall. While consumers were stuck at home kicking off a surge in e-commerce, the demand was met because supply chains that might normally have been going toward manufacturing shifted to accommodate. Plus, the supply was there because the increase in consumer demand at least partly took up the slack in demand from industry. But with the rollout of vaccines and an easing of restrictions, manufacturing in previously slowed industries, like automotive, began returning. However, consumer demand was still there.
Now, I’m not great with economics. In fact, I’m probably the last person on earth you’d ever want to take economic advice from, but even someone like me understands that a surge in demand strains supply. Throw changes in a government’s policy that affect supply — like China no longer importing wastes, which affects paper — to tragedies like back-to-back hurricanes followed by a freeze affecting Texas — which impacts plastics — and you have a reduction in raw materials, too. So, an increase in demand with a decrease in supply means prices go up.
This increase in demand and reduction in supply is affecting everyone. The very overblown fear of a toilet paper shortage last year has been met with a very real cardboard shortage. Auto manufacturers are idling plants. Ink prices are rising. Coating prices are rising. A chip shortage means continuing a months-long wait for me to get a new work computer. A Bloomberg article last month by Kevin Crowley speculates that inflation may be on the way because these costs to manufacturers are more than likely to be passed on to the consumer. Dealing with inflation after all the other economic difficulties spells bad news. Even I know that.
The good news is that Federal Reserve Chair Jerome Powell is expecting this spike in prices to be temporary. Demand will level off and suppliers, particularly in plastics, anticipate operations to be back to full capacity by the fourth quarter.
That’s your ad-hoc rundown of the current state of pricing. It’s something that we’re keeping our eyes on, and we’ll share any news or insight with you as we learn more.