Inflation Rate Increasing

[TwoSheds]

https://www.ft.com/content/92e87e48-1618-4283-b247-52dcf70dde45

So according to even the bullshit inflation figures it's exceeded expectations at 2.5% year on year while the Bank of England were predicting 2.1%. in actual fact house prices have gone up by nearly 10%, food in the supermarkets seems to be going up 10p a month, fuel prices are as high as they were back in ~2013 and still going up it seems.

So what's the cause? Is it just temporary like the BoE lackeys are saying and caused by the pandemic artificially suppressing economic activity? Or are there more permanent, underlying reasons?

I rather suspect it's the latter - Brexit and the pandemic have caused a widespread shortage of lorry drivers and agricultural workers, we've got massively increased non-tarriff barriers with the EU and so fresh food seems to often be coming from Egypt and other places further afield rather than Italy and Spain like it often used to. So what would the implications be if this is why prices are rising? Will there be a political backlash? What if BoE have to raise interest rates? Will we see huge numbers of businesses go under? Doooooooom?

 

[Giant Midget]

https://www.ft.com/content/92e87e48-1618-4283-b247-52dcf70dde45

So according to even the bullshit inflation figures it's exceeded expectations at 2.5% year on year while the Bank of England were predicting 2.1%. in actual fact house prices have gone up by nearly 10%, food in the supermarkets seems to be going up 10p a month, fuel prices are as high as they were back in ~2013 and still going up it seems.

So what's the cause? Is it just temporary like the BoE lackeys are saying and caused by the pandemic artificially suppressing economic activity? Or are there more permanent, underlying reasons?

I rather suspect it's the latter - Brexit and the pandemic have caused a widespread shortage of lorry drivers and agricultural workers, we've got massively increased non-tarriff barriers with the EU and so fresh food seems to often be coming from Egypt and other places further afield rather than Italy and Spain like it often used to. So what would the implications be if this is why prices are rising? Will there be a political backlash? What if BoE have to raise interest rates? Will we see huge numbers of businesses go under? Doooooooom?

Haven't seen this mentioned anywhere else, but I work in logistics for a wholesaler. The cost of a container from China was around $1,800 in November, and now it is between $15,000 to $18,000. Our products have had a price increase of about 30% since January (in an industry where 1 - 2% price increase could mean customers dropping you because of the razor-thin margins) because of the higher landed cost. Surely, this must be replicated pretty much everywhere else because the UK basically imports everything.

 

[TwoSheds]

Haven't seen this mentioned anywhere else, but I work in logistics for a wholesaler. The cost of a container from China was around $1,800 in November, and now it is between $15,000 to $18,000. Our products have had a price increase of about 30% since January (in an industry where 1 - 2% price increase could mean customers dropping you because of the razor-thin margins) because of the higher landed cost. Surely, this must be replicated pretty much everywhere else because the UK basically imports everything.

That's interesting. I've heard that the shipping companies have been accused of price fixing? What's your view on why the cost of shipping has increased so much?

 

[Giant Midget]

That's interesting. I've heard that the shipping companies have been accused of price fixing? What's your view on why the cost of shipping has increased so much?

I think there's multiple factors, but thre main ones are:

- Covid: Demand for goods actually increased during lockdown, as people had more disposable income as they were not spending on restaurants, vacations, etc. This is especially noticeable in the US, where current imports are 25% above 2019 levels, which is absolutely ridiculous. Theré's a lack of infrastrcuture do deal with such a surge, which means vessels are facing congestion at ports and long waits to dock and containers are taking longer to be offloaded and returned. This results in a failure of container repositioning - there's simply not enough empty containers going back to Asia quick enough to deal with the demand. A massive supply crunch exists, and has resulted in rates being sky-high.

- Consolidation in shipping: The carriers are basically an oligopoly. They currently already operate in "alliances" where they coordinate on schedules and routes. Hard for me to believe there's no coordinating on pricing as well. I read an interesting statistic that in 2000, the top 10 shipping lines controlled around 20% of the market, whereas now they control over 80%.

- System shocks: Yantian closure and Suez Canal blockage made bad situation even worse.

In any case, the situation will not really resolve until after Chinese New Year 2022, and who knows where the rates will settle. I can 100% guarantee they wont go back to the sub-$2000 level in the next 3 years.

 

[rcoobc]

Huge price, huge lead time increases. Surprised inflation isn't 10%-20% personally

 

[hungrywing]

Haven't seen this mentioned anywhere else, but I work in logistics for a wholesaler. The cost of a container from China was around $1,800 in November, and now it is between $15,000 to $18,000. Our products have had a price increase of about 30% since January (in an industry where 1 - 2% price increase could mean customers dropping you because of the razor-thin margins) because of the higher landed cost. Surely, this must be replicated pretty much everywhere else because the UK basically imports everything.

What the $h!t

 

[F-Red]

We're seeing it hit $20k per container in some regards now, other impacts is shortages in raw materials having impact to wider cost increases across the board. That has probably had more of a contributing factor to the pricing increases in the industry I work in rather than Brexit at this stage. We don't see any calming of this period until 2023 at the earliest.

 

[Rajma]

Haven't seen this mentioned anywhere else, but I work in logistics for a wholesaler. The cost of a container from China was around $1,800 in November, and now it is between $15,000 to $18,000. Our products have had a price increase of about 30% since January (in an industry where 1 - 2% price increase could mean customers dropping you because of the razor-thin margins) because of the higher landed cost. Surely, this must be replicated pretty much everywhere else because the UK basically imports everything.

Can confirm that as my gf works for big logistics company here in Lithuania managing these containers. It’s the same sort of price increase here as well and we import loads of stuff from China too. I’ve just started building the house and it’s been a total nightmare in terms of getting raw materials, prices have gone up significantly too.

 

[Simbo]

Its not just China either, same increases in shipping from S.Korea (only major economy UK has a trade deal with) and I suspect the rest of Asia. We've also seen increases and ridiculous delays from the US.

 

[Giant Midget]

Its not just China either, same increases in shipping from S.Korea (only major economy UK has a trade deal with) and I suspect the rest of Asia. We've also seen increases and ridiculous delays from the US.

Pretty much, we import from Indonesia and Thailand too and it's the same sort of increases.

 

[Vernon Philander]

Stamp Duty holiday from the Tory fool Sunak hasn't helped either.

Will be interesting to see what levers the BoE will be forced with if this persists. The UK has become drunk on low rates for so long now.

 

[VeevaVee]

Reckon a good chunk of it is just having a good excuse to raise prices. Capitalism, basically.

 

[Abizzz]

A lot of different factors playing into this, but at the end of the day there's just that much cash going around. The Chinese are buying what they can get their hands on and US are coming back (number wise) too. There's only so much stuff to buy.

 

[Sky1981]

https://www.ft.com/content/92e87e48-1618-4283-b247-52dcf70dde45

So according to even the bullshit inflation figures it's exceeded expectations at 2.5% year on year while the Bank of England were predicting 2.1%. in actual fact house prices have gone up by nearly 10%, food in the supermarkets seems to be going up 10p a month, fuel prices are as high as they were back in ~2013 and still going up it seems.

So what's the cause? Is it just temporary like the BoE lackeys are saying and caused by the pandemic artificially suppressing economic activity? Or are there more permanent, underlying reasons?

I rather suspect it's the latter - Brexit and the pandemic have caused a widespread shortage of lorry drivers and agricultural workers, we've got massively increased non-tarriff barriers with the EU and so fresh food seems to often be coming from Egypt and other places further afield rather than Italy and Spain like it often used to. So what would the implications be if this is why prices are rising? Will there be a political backlash? What if BoE have to raise interest rates? Will we see huge numbers of businesses go under? Doooooooom?

I've had 10% per year on average (granted we've had a couple of economic crash in 98 and 2008, but it is that. The big mac deal cost 10x more now than 20 years ago.

We've been paying for the US printing money, our money got more depreciated by the day. Their inflation are relatively stable. Off course this is just a theory of mine.

 

[NotThatSoph]

Inflation is a monetary phenomenon. We have been pushing an expansionary monetary policy for years, both to get inflation up to wanted levels (around 2 %) and to counteract economic downturns (the financial crisis, now covid). 2.5 % is slightly above target but not a big deal, if it stays above that level for a while the BoE will probably tighten which means a bit higher interest rates. Seeing as the rate right now is 0.1 % that shouldn't worry people too much.

 

[Sky1981]

Pretty much, we import from Indonesia and Thailand too and it's the same sort of increases.

For Indonesian the delays and high cost are probably mostly down to COVID slowing a lot of things down, from the Singapore transit to crews needing extra PCR test and lockdowns and WFH. The producer part of the goods aren't having it easy with constant interruptions from COVID as well

 

[Pogue Mahone]

It was inevitably going to increase over the course of this year. Which is a kick in the bollox for anyone working for organisations that give inflation linked annual salary increases (officially 0% in Ireland this year)

 

[11101]

It's inevitable worldwide, it's not just the UK. Governments have pumped trillions of free cash into a system that could not spend it even if it wanted to over the last 18 months. Household savings rates have gone up around 30% in the last year and now people want to spend some of it, and there's only so much stuff to buy. Less even when you consider factories were closed and shipping routes blocked.

To be honest an inflation rate of 2.5% is hardly a disaster. The BoE target is 2%.

 

[TwoSheds]

It's inevitable worldwide, it's not just the UK. Governments have pumped trillions of free cash into a system that could not spend it even if it wanted to over the last 18 months. Household savings rates have gone up around 30% in the last year and now people want to spend some of it, and there's only so much stuff to buy. Less even when you consider factories were closed and shipping routes blocked.

To be honest an inflation rate of 2.5% is hardly a disaster. The BoE target is 2%.

...it's still going up. And these systemic issues with shipping, trade barriers and (vastly) excessive QE aren't going anywhere overnight.

Very interesting to read the views from the logistics people in here. If these problems persist then it perhaps makes joining the TPP even more daft for the UK? But might mean it will make economic sense to invest in UK manufacturing of certain goods that we've long ago stopped bothering with on a grand scale like furniture?

 

[11101]

...it's still going up. And these systemic issues with shipping, trade barriers and (vastly) excessive QE aren't going anywhere overnight.

Very interesting to read the views from the logistics people in here. If these problems persist then it perhaps makes joining the TPP even more daft for the UK? But might mean it will make economic sense to invest in UK manufacturing of certain goods that we've long ago stopped bothering with on a grand scale like furniture?

It's going up from historic lows. It went over 5% post 2008 recession and was higher in 2017 too. I'd say right now it's a temporary bounce from an artificial suppression, and if it's not there is plenty of room to raise interest rates from near zero. Step one would be for the BoE to slow the stimulus programme.

 

[Adisa]

Supply side shocks are not going anywhere anytime soon, so I don't think it is transitional. I am heading to Nigeria soon and theirs is 18% with food inflation at close to 23% Just putting things in context.

 

[TwoSheds]

It's going up from historic lows. It went over 5% post 2008 recession and was higher in 2017 too. I'd say right now it's a temporary bounce from an artificial suppression, and if it's not there is plenty of room to raise interest rates from near zero. Step one would be for the BoE to slow the stimulus programme.

How are national and business debt ratios by comparison to those days though?

 

[MikeUpNorth]

Calm down, people. It’s mostly base effects, with some supply bottlenecks which will resolve themselves in time.

I’m more worried about growth weakening than persistently high inflation.

 

[Buster15]

Haven't seen this mentioned anywhere else, but I work in logistics for a wholesaler. The cost of a container from China was around $1,800 in November, and now it is between $15,000 to $18,000. Our products have had a price increase of about 30% since January (in an industry where 1 - 2% price increase could mean customers dropping you because of the razor-thin margins) because of the higher landed cost. Surely, this must be replicated pretty much everywhere else because the UK basically imports everything.

Wow. And once they arrive in the UK, they need to be transported by lorry. Due to the severe shortage of lorry drivers and the fuel prices going up steeply, lorry transport costs have and will be increasing sharply.

 

[Ecstatic]

Quality thread and contributions.

Usually, a very high inflation triggers an increase of interest rates.

Not impossible that the cost of borrowing will increase sharply very soon

 

[Dr. Dwayne]

Production costs have gone up due to COVID protocols and other pandemic impacts and that cost is being passed on to consumers.

My concern is that when things settle down and these protocols are no longer required, the manufacturers will keep the higher prices and government will allow it.

 

[Mr Pigeon]

Haven't seen this mentioned anywhere else, but I work in logistics for a wholesaler. The cost of a container from China was around $1,800 in November, and now it is between $15,000 to $18,000. Our products have had a price increase of about 30% since January (in an industry where 1 - 2% price increase could mean customers dropping you because of the razor-thin margins) because of the higher landed cost. Surely, this must be replicated pretty much everywhere else because the UK basically imports everything.

 

[F-Red]

Production costs have gone up due to COVID protocols and other pandemic impacts and that cost is being passed on to consumers.

My concern is that when things settle down and these protocols are no longer required, the manufacturers will keep the higher prices and government will allow it.

What sector/industry are you referring to here?

 

[Dr. Dwayne]

What sector/industry are you referring to here?

Consumer goods, mostly. Anything that's produced in a factory setting that relies on humans. Mostly thinking about meat, food products, household products, etc. My presumption is that any factory setting that relies on humans to produce goods had to re-tool with PPE, other safety/hygiene measures and potentially reduced staffing and production numbers, all leading to increased production costs.

 

[F-Red]

Consumer goods, mostly. Anything that's produced in a factory setting that relies on humans. Mostly thinking about meat, food products, household products, etc. My presumption is that any factory setting that relies on humans to produce goods had to re-tool with PPE, other safety/hygiene measures and potentially reduced staffing and production numbers, all leading to increased production costs.

No, that's not been the case in my experience really. The process broadly has been the same at a factory level, it's just a slight reduction in output and increased lead times. Even in our manufacturing, with all the safety measures in place, we were broadly outputting the same during covid as we were prior to covid. Majority of the cost increases I've seen is broadly down to freight costs and raw material shortage, and in certain sectors a combination of freight and intentional increases to contain demand better or where supply has been completely outstrip by demand.

 

[finneh]

No, that's not been the case in my experience really. The process broadly has been the same at a factory level, it's just a slight reduction in output and increased lead times. Even in our manufacturing, with all the safety measures in place, we were broadly outputting the same during covid as we were prior to covid. Majority of the cost increases I've seen is broadly down to freight costs and raw material shortage, and in certain sectors a combination of freight and intentional increases to contain demand better or where supply has been completely outstrip by demand.

Definitely. I've been in several meetings where suppliers state simply that UK demand is outstripping supply, such that lead times had at least quintupled. The remedy to that in their view is to raise prices by twice the raw material increases (easily 35% and in the case of MDF 20% per month compounded for 5 consecutive months) to suppress demand.

Add in raw material increases as a result of lockdowns across the globe reducing supply and the aforementioned order of magnitude increase in container costs and you have a perfect storm.

In the construction sector there is hope that the end of the stamp duty holiday, combined with house builders slowing down as a result of narrowing margins, plus people starting to spend their cash on holidays, nice meals, theatre etc; instead of home improvements... It'll start to reverse the problem.

However when countries like Indonesia are still locked down even if the demand element finds an equilibrium, there are still ongoing supply problems.

 

[F-Red]

In the construction sector there is hope that the end of the stamp duty holiday, combined with house builders slowing down as a result of narrowing margins, plus people starting to spend their cash on holidays, nice meals, theatre etc; instead of home improvements... It'll start to reverse the problem.

I'm in the sporting goods industry, and at the higher end of price tags that would put us as a considered purchase. We're seeing the opening of society having an positive impact to demand (ie. reducing) as they spend their cash elsewhere. It won't improve anytime soon though, 2023 in our sector, but giving society a few certain things to spend their money on has put stresses on supply chains to unbelievable levels. I laughed the other day when one supplier was quoting over 500 days lead time on a certain component!

 

[Pogue Mahone]

I'm in the sporting goods industry, and at the higher end of price tags that would put us as a considered purchase. We're seeing the opening of society having an positive impact to demand (ie. reducing) as they spend their cash elsewhere. It won't improve anytime soon though, 2023 in our sector, but giving society a few certain things to spend their money on has put stresses on supply chains to unbelievable levels. I laughed the other day when one supplier was quoting over 500 days lead time on a certain component!

Is Brexit playing a role in those shortages?

In Ireland I’ve heard of crazy shortages in construction but not so much in other industries.

 

[711]

US inflation now 5.4% and rising. Not just Brexit then.

 

[F-Red]

Is Brexit playing a role in those shortages?

In Ireland I’ve heard of crazy shortages in construction but not so much in other industries.

I sell bikes for a living, and we're seeing eye watering lead times and haven't seen demand drop from the covid impact on the sector.

Brexit wise not so much actually, we import about 80% from the Far East, with the remaining balance from Europe. We've now started to look at what we can now make over here as a long term solution to mitigate any future impacts in the Far East. Brexit wise, there's been some slight increases due to the process of clearing with customs now, but in contrast to what's happening in the Far East it doesn't seem the biggest challenge for us. Exports is probably the one thing that has impacted and we're probably doing about 25-30% less than we were prior to Brexit.

 

[Pogue Mahone]

I sell bikes for a living, and we're seeing eye watering lead times and haven't seen demand drop from the covid impact on the sector.

Brexit wise not so much actually, we import about 80% from the Far East, with the remaining balance from Europe. We've now started to look at what we can now make over here as a long term solution to mitigate any future impacts in the Far East. Brexit wise, there's been some slight increases due to the process of clearing with customs now, but in contrast to what's happening in the Far East it doesn't seem the biggest challenge for us. Exports is probably the one thing that has impacted and we're probably doing about 25-30% less than we were prior to Brexit.

Interesting. Thanks. So what’s going wrong in the Far East?

 

[F-Red]

Interesting. Thanks. So what’s going wrong in the Far East?

Outside of the container pricing going up to ridiculous levels, some of the largest manufacturers didn't react quick enough to the demand that covid generated as they thought it was only a short term blip. Trends are saying that this level will be realistic for the next 5 years, and potentially increase as getting people out of cars is the only viable means to reduce emissions and congestion efficiently. Shimano's capacity in their factories could react to a 5-10% swing in an increase in demand and cope, but they saw a 50% increase month on month from March 2020. Only now are they getting to a stage of getting new factories online, and they won't be up to speed till the end of the year at the very least and then that stock hitting markets in the middle of next year.

 

[Pogue Mahone]

Outside of the container pricing going up to ridiculous levels, some of the largest manufacturers didn't react quick enough to the demand that covid generated as they thought it was only a short term blip. Trends are saying that this level will be realistic for the next 5 years, and potentially increase as getting people out of cars is the only viable means to reduce emissions and congestion efficiently. Shimano's capacity in their factories could react to a 5-10% swing in an increase in demand and cope, but they saw a 50% increase month on month from March 2020. Only now are they getting to a stage of getting new factories online, and they won't be up to speed till the end of the year at the very least and then that stock hitting markets in the middle of next year.

Ah. Ok. I guess this is kind of.. good news? For the planet, I mean. And your company, in the long term?

 

[F-Red]

Ah. Ok. I guess this is kind of.. good news? For the planet, I mean. And your company, in the long term?

Yeah definitely for the planet, the good thing is the answer to solve it doesn’t need a huge amount of development just habits changing to not rely on the car, which will be the biggest hurdle.

Company wise we’re in a good position for growth and whilst stock is in short supply we’ve indexed above the industry average for sales growth which we can’t really complain about. Plus we’ve gone from 70 heads prior to covid to over 200 now, so it’s a good local story for employment as well.

 

[Carolina Red]

Reckon a good chunk of it is just having a good excuse to raise prices. Capitalism, basically.

I’ve seen many an article saying “oh this is good, it’s a sign of an improving economy”.