The Take: Supply Chain Woes Contribute to U.S. Inflation Spike

What’s News

U.S. consumer prices rose 0.5% in December and 7% on a year-on-year basis, according to the latest Bureau of Labor Statistics – the fastest rate for 40 years.

SAP’s Take

Unexpectedly strong consumer demand coupled with congested supply chains and labor shortages are being blamed for the recent spike in U.S. inflation. Prices are rising across the board, but food, energy and healthcare costs have been particularly hard.

Take food, for example: Almost every category of food has become more expensive in the past year as the industry confronts rising energy and transportation costs, along with mounting labor shortages. Some prices have risen by more than 10% because of higher grain and costs, and overall grocery prices have risen 6.5% since last year.

“It is not that there is not enough food in the supply chain, it’s the inability to get the goods to the right place at the right time,” said Richard Howells, a digital supply chain expert at SAP.

While other factors including labor shortages related to COVID-19 — particularly in the transportation and trucking industries — have also played a role in boosting inflation, supply chain disruption and problems forecasting demand have played a major role.

Volatile energy costs have played havoc with gas station pump prices and heating costs. According to projections from the U.S. Energy Information Administration, the roughly 50% of American households that rely primarily on natural gas to heat their homes are expected to spend 30% more on heating their homes this winter than they did last year.

What’s Next

Although most economists still believe price increases will be temporary, there are few signs that the current wave of supply chain disruptions will end anytime soon.

“I expect continued disruptions in the short term with challenges around cargo ships, labor shortages and supply and demand imbalances.  It may well take until the second half of 2022 for there to be improvement,” says Howells.

Joellen Perry, Head of Global Public Relations, SAP
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