Like many countries around the world, the U.S. has been beset with rising prices. Especially since 2020 when Joe Biden took office. Seems no commodity, even essential goods has been spared. Politics likes to find a scapegoat for this, almost always to gain points for the party. The problem is, they rarely get it right. The target for the blame typically gets pinned on the wrong group.
Identifying a singular culprit for rising prices, or inflation, is often very difficult. Usually because it's not just one culprit. Inflation doesn't happen because a certain manufacturer or industry decides to raise prices to increase their profit margin. Most companies take pride in gaining increased profits due to internal improvements in efficiency and technology. In other words, they earn them. Simply raising profit margins over time without increases in efficiency and better business practices isn't sustainable.
Getting products and services to market doesn't begin and end with the end supplier to the consumer. There is a "supply chain" that supports the end supplier with raw materials. They might be iron ore, crude oil, minerals, or any material that is obtained from the earth. 80% of all goods consumed on earth begins with a raw material from one of those three groups. It may be a tennis ball, an X-ray machine, a bottle of wine, a car, a pair of headphones, a light bulb, the list is endless. There are some that don't originate with raw earth materials. For instance leather. The seats in our cars, the materials on our sofas that we sit on at home, the wool in our favorite sweaters, cotton for clothing, and many others. Even materials that don't originate with raw earth materials, they are still dependent on the supply chain. Leather needs dyes that require gases and minerals to manufacture. Cotton and wool also require dyes and chemicals to clean and process the fibers.
Here's the real kicker. 100% of all goods consumed on earth require energy at some point in the supply chain, if not all points. And the vast majority of the world's energy (86%) comes from raw earth materials.
Supply chains are more often than not complex networks of sources of materials, labor, energy, and services that work together to produce an end product on the market. When even one link in the 'supply chain' is disrupted, this can cause a delay or even a lack of availability of a product in the market. At this point, the laws of supply and demand step in. Assuming the demand stays constant, a lack of supply will result in a price increase.
Here's another 'real world' example to consider. The Iran war and the blockade and stoppage of traffic in the Strait of Hormuz has seriously stymied the flow of crude oil to many countries. Crude is of course the source of energy for countless industries in many countries. If a country's crude supplies are disrupted, energy costs are going to increase. The cost increase is going to passed down the supply chain. It will cost more to refine or process the raw earth material. Energy plays a major role in manufacturing as well. The end product now costs more, but not as a result of the manufacturer raising prices, or even the energy provider. The higher prices are attributable to the very first link in the supply chain, the crude supplier. Arguably, even the crude supplier can deflect blame. A geopolitical event shut down the suppliers ability to deliver his cargo.
That's just one of a myriad of possibilities. Twenty-first century global economics is a complex subject. No country is completely self-dependent. Suppliers have suppliers who have suppliers who have suppliers... And the suppliers are scattered around the world. Given the helter-skelter nature of world geopolitical 'events', one can see how easily and abruptly a link in a supply chain can be disturbed. One event in the Gulf of Oman can affect prices in dozens of countries. It did, and it's not over yet...
No comments:
Post a Comment