Inflation, Supply Chain Woes a Reality for Municipalities and Businesses Alike
The looming threat of turkey, pumpkin pie filling, and Christmas present shortages certainly strikes fear into anybody who has witnessed the barbarism of American Black Friday shoppers. As bad as stampedes over toys and Christmas trees sound, we’d like to draw the attention of a more dangerous consequence of a crippled supply chain and inflated dollar: higher utility prices and impeded municipal operations.
Last February, we watched as energy powerhouse, Texas, was sent into chaos as a winter storm crippled the state grid, sending millions into a freezing blackout. After the Department of Energy refused to allow power plants to exceed emissions limits and energy prices spiked, 210 people died, many in their homes of hypothermia. This situation gives us a glimpse into the harsh consequences of short interruptions in municipal services and utilities.
Today’s economy is breeding similar symptoms to the February 2021 snowstorms in Texas. Natural gas, the product whose shortages and use restrictions contributed to deaths in Texas, is a prime example. The fossil fuel is our largest source of power, accounting for 40% of power production. Over the last year its price has increased about 90%. As heating and energy prices are driven higher by inflationary forces and supply shortages, more people are at risk of not being able to afford their utility bills, adding to the existing $29 billion in utilities debt carried by Americans. The same forces are at work on essential commodities like crude oil, aluminum, hot rolled coil steel, and heating oil which have seen price increases of 105%, 59%, 159%, and 97%.
As businesses and municipalities look to plan future operations, they can no longer ignore the high likelihood that materials and goods needed for normal operations will be more expensive and difficult, or even impossible to source over the next few years. The popular sentiment that supply issues and inflation are transitory is rapidly being eroded as consumers see gas nearing $4 per gallon and increasing bald spots in grocery stores. Companies like Unilever are also quietly announcing price increases so higher production costs can be passed on to consumers.
If you are a leader in local government or industry, it is more important than ever to prepare for an economy that can no longer support “just-in-time” procurement of raw materials or emergency maintenance items. Earlier this month, the executive director of the Port of Long Beach reported to the Wall Street Journal that extended container ship offloading will continue into the summer of 2022. Logistics issues with imported products, a growing shortage of skilled labor, and general labor force shortage spell a crisis for manufactured goods supply chains.
The supply chain crisis is affecting every industry, meanwhile distributors monitor their inventory levels and seek opportunities for a competitive edge. For example, BCS client Tec-Hackett is a distributor of automation and control products throughout Indiana. The company has responded to the crisis by using multiple advertising avenues to spread awareness of products “in-stock.” Customers (new and ongoing) are now seeking alternatives, even in industries historically driven by brand loyalty.
As we move into an uncertain economic future, we must not forget that expensive commodities and production delays are merely symptoms of an economy infected with a weakened currency and unhealthy dependency on imported goods and raw materials. About $14 trillion has been added to the US money supply (78% of dollars in circulation) since 2019, without an equivalent rise in productivity. This inflation tax will be felt by consumers and business alike for years and threatens the dollar’s status as a reserve currency.
While our economy and institutions are in turmoil, we can always have faith in the free market and spirit of innovation of our country. Though they have been abused and subdued, they can never be erased. At BCS Management we get to serve businesses that are driven by purpose and municipal leaders working every day to secure a valuable future for their constituents. No matter where the markets turn, we’ll be here to help.