Inflation Coming…but Stock isn’t !

The Bank of England recently highlighted the danger of inflation having dismissed it a few weeks before. However, nothing has been so blindingly obvious as the sight of inflation on the horizon. These are the bank of England’s words in April of this year

Inflation is below our 2% target, but we expect it to rise to around the target this year

Below is the US inflation in May

The annual inflation rate for the United States is 5.0% for the 12 months ended May 2021 after rising 4.2% previously, according to U.S. Labor Department data published June 10. The next inflation update is scheduled for release on July 13 at 8:30 a.m. ET. It will offer the rate of inflation over the 12 months ended June 2021.

Now we are , of course not the US, but to believe that inflation in the UK will be only 2% is , I believe, either very naïve or very stupid. I hope I am wrong.

Driven by rising prices for food and for second-hand cars, the headline annual CPI rate of inflation rose to 2.5 per cent in June. City economists had forecast a 2 per cent rise. Month-on-month inflation rose 0.5 per cent, down from 0.6 per cent in May but ahead of City forecasts for a 0.2 per cent rise.

Richard Fletcher – The Times July 14th
  • Huge rise in factory gate prices (Far East Especially)

China’s factory-gate prices rose at the fastest pace in more than three years in April, fuelled by rapidly climbing costs for metals, oil and other materials.

The producer price index rose 6.8% in April from a year earlier, accelerating from March’s 4.4% increase, the National Bureau of Statistics said Tuesday. The reading was the highest since October 2017, when the PPI climbed 6.9%, and beat the 6.5% increase expected by economists polled by The Wall Street Journal.

Prices in the production sector continue to march upward amid rising international commodity prices, the bureau said.

On a monthly basis, China’s PPI expanded 0.9% in April from March, while the price of the means of production increased 9.1%, according to the bureau. The monthly decline was mainly driven by falling prices in the oil and non-ferrous metals industries. -Marketwatch.com

  • Massive increase in shipping Costs
Source Freightos
  • Increasing demand

Nearly all commodity prices rose in 2021Q1,
continuing the marked rebound since mid-2020
(figure 1.A). Almost all commodity prices now
exceed their pre-pandemic levels, and those of
some commodities, notably metals, are well above
their previous levels—copper prices were nearly 50
percent higher in March 2021 relative to the end
of 2019. The recovery has been driven by the
improving global economic outlook, aided by
significant monetary and fiscal stimulus in
advanced economies, and steady, although
uneven, vaccination rates. –World Bank

  • Increasing Wage rates

Additionally, pay growth is being affected by the base effect where the latest month is now compared with April 2020 when earnings were first affected by the coronavirus pandemic; April 2021 saw a growth rate of 8.4% for total pay and 7.3% for regular pay which feeds into the strong 5.6% average growth rate for February to April 2021.

ONS June 2021
  • Shortage of labour

Sounding the alarm over the risks to economic recovery from acute labour shortages, the Recruitment and Employment Confederation (REC) and the accountancy firm KPMG said the number of available workers plunged in June at the fastest rate since 1997.

Recruitment firms are reporting hiring challenges across several sectors of the economy, led by shortfalls in areas such as transport and logistics, hospitality, manufacturing and construction. …….In a sign of the growing pressure on companies, surveys from the British Chambers of Commerce published on Thursday showed 70% that had tried to hire staff in the three months to June had struggled to do so.. The Guardian July 2021

Lest we not forget , vast quantities of Government ????????

Now this is not the first time but it is for very different reasons a rather strange paradox as we have rising prices but the stuff we want, there is nothing to buy. A bit of an exaggeration, perhaps, but there is a shortage of product both unfinished and finished . In the UK in the early seventies , when inflation was rampant there were shortages but they were due to industrial action, such as the Coal Miners strike and the Middle East Oil crisis. Today’s shortages are due to disrupted supply chains primarily due to Covid, turn around in demand and shipping .

From Micro Chipmakers, Car Manufacturers, Construction through Food and us humble party suppliers, there is not enough product within the supply chain. Many have temporarily reduced their ranges to concentrate on core product. So are prices going up on product that does not exist. Not quite. However, it provides a temporarily dilemma. Retailers with healthy cashflows don’t mind a bit of inflation. I can go back to inflation nearing 20%. Traders without borrowings loved it . It meant more cash and consequently the same margin on a bigger take. The same applies to 4/5% inflation but if you are losing turnover in not be able to get core product, you don’t benefit much from a price increase.

The Consumer looses out on all counts. In the short term they can’t get exactly what they want , and when they can they have to pay more for it. However, something else comes into play with Consumer Purchasing psychology . Whilst I do no think there have been any studies yet, but there is circumstantial evidence to show that when a consumer cant get the brand they want, they buy an alternative and maybe don’t switch back.

Many do not expect to see much improvement in the supply chain until well into 2022. The problem being exacerbated by the inability to build any stock as all product is going into supplying current orders. That said as covid continues its destructive path , it does all it can to maintaining disruption in manufacturing and supply.

So what to do ? If you are trading you need stock and if you put off buying because of price increases, you are

  1. Missing revenue because you don’t the product (or service) to sell.
  2. Waiting means the possibility of further price increasesand maybe even further delays , leading to your customers going elsewhere.

There are times when stock is King. This is one of them.

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