Inflation is often considered a good economic event by confident economists because it signifies economic growth. However, all rely on consumers paying a premium price of a product they might not afford directly. Before outlining why it is bad for consumers, one must understand the economic cycle that leads to inflation.
Certain events must be in place to create inflation, such as natural disasters, pandemics, wars, or bad economic management. These unfortunate events may lead to a recession in the given economy.
During the recession, a country experiences a shortage of suppliers of primary products that drive the economy. For example, due to the 2020 pandemic, all countries experienced a significant gap in supply in many sectors. In the first quarter of 2020, the federal reserve officially declared recession.
During the pandemic of 2020, the price was stable because of the federal reserve monetary policies to maintain a price-stable, especially at a difficult time. At the same time, the federal reserve was also continuously printing more money. Despite their attempt to stabilize the economy, they could not prevent the scarcity of certain products in the market. Eventually, the demand for these products leads to an increase in prices. A general price increase is considered inflation.
Could California's Shipping Cargo Problem Contribute to Inflation?
At a certain point, the answer is yes. The interruption of the distribution supply chain has affected many businesses. To create a safe point of production, companies are holding on to their current suppliers.
Three uncertainties companies are facing:
Uncertainties of pricing
Despite paying for the current shipping at a specific price, companies are not sure about the pricing of their following supplies. Suppliers might also raise the cost of their products to beat inflation, which will create a domino effect in the economy.
Uncertainties of the Delivery time
Currently, there is no clear resolution of the California shipping cargo problem. Companies are facing the certainty of delivery time. They are even willing to pay a premium price to get their product delivered faster. Note that all costs are passed down to consumers, eventually.
Uncertainties of quantities of demand
The disruption of supply-chair, delay in delivery time, and production created doubt of demand quantities when the product is ready. Companies are unsure if consumers will still be eager to purchase the same products.
The Source of the Disruption of Supply-Chain
A post-pandemic reality many companies did not expect. Workers' reaction to wages and compensation along with their cost of living. Despite the suspension of financial support for millions of Americans for months, people are still not willing to accept a job that pays less than their essential cost of living. The low demand for jobs challenges companies such as Amazon even with a $ 3000 signing bonus.
The truth is that employees prefer an increase in salary to a signing bonus. An increase in the signing bonus by a company shows one of three things:
The position is maybe hard to fill.
Unfavorable work conditions.
Higher jobs abandonment.
The unwillingness of the company to raise current employees' pay may also contribute to higher job abandonment. Sadly, people who are still working for the same company before the pandemic did not get significant raises in their wages or salary. In comparison, people who successfully changed companies or industries saw a substantial pay gap.
Are they taking current employees' work and commitment for granted?
Are they too comfortable with their current job to find a dream career?
Regardless of the answer, the demand has to be meet the supply for a strong economy.