Production cuts during the pandemic, drought in Asia, increased demand, and a shipping bottleneck. All are factors in current and coming supply shortages that have exposed the frailty of supply chains around the world. To you, that means a scarcity of some goods and higher prices.
We will examine supply shortages that have and will lead to price increases in general. However, let’s first take a look at three resources in short supply now that are pushing prices upward.
Gas Prices Increase
Despite an increase in demand, prices at the pump have remained fairly steady, according to the American Automotive Association (AAA). So far this month, a gallon of gas has averaged $2.86 reports AAA. However, that is about $1 higher than this time last year.
One of the reasons gas prices have climbed is OPEC production cuts. The cartel decreased production earlier this year. However, on April 1, it announced gradual production increases. That may stabilize prices for now, but future production changes could increase what you pay at the pump.
“For all of 2021, we expect U.S. retail prices of regular-grade gasoline to average $2.66/gal and retail prices for all grades to average $2.78/gal,” states the U. S. Energy Information Administration, “which would result in the average U.S. household spending about $480 (31%) more on motor fuel in 2021 compared with 2020.”
Traditionally, demand for gas increases as people hit the road on vacation. That didn’t happen much last year. However, this year is expected to be different. More vaccinated people with more money are expected to increase their travel this summer. That will increase demand. If supplies do not keep up, prices will increase.
Rubber Supply Shortage Expanding
Natural rubber climbed to a four-year high this week, trading at $2.20 per kilogram. The price increase is attributable to a rubber supply shortage. How nice, you say, for those traders who bet on rubber. But how does that affect me?
It means you will pay more for many things you use every day.
Rubber Used in Many Products
As you go through your day, take note of the rubber in all the products you use. Do you walk across a floor? There is rubber under the carpet or wood. In fact, your shoes probably contain rubber. Do you go to a doctor? Those gloves they wear are made of rubber. Do you drive or take public transportation? Rubber is used in the tires and belts of those vehicles. It is also used in adhesives, clothing, and many other products.
Tire Prices Rising
Because rubber is used in so many products it is hard to break down price hikes in each one. However, one of the most noticeable products being affected by the decreased rubber supply is tires.
Major tire manufactures have raised prices an average of eight percent in recent months.
The China Factor
Contributing to the rubber supply shortage was a drought in Thailand and Vietnam. However, China has had an impact. It began stockpiling rubber in 2012. As rubber made its way to the market this year, China has been quick to make purchases.
Wood Growing Scarce
If you are building a new home, you will pay on average $24,000 more this year than in 2020, according to the National Association of Home Builders (NAHB). The increase is due to increasing lumber prices.
“The escalating lumber prices are largely due to insufficient domestic production and extremely large lumber mill curtailments that lasted well into the 2020 building season,” says the NAHB.
Other Causes of Supply Shortages
Though there are specific causes for some shortages, there are some general causes that impact almost all products.
Many companies cut production in anticipation of reduced demand during the height of the pandemic. They also reduced production capacity by exercising safety precautions. Those safety measures, such as social distancing, reduced the workforce. As a result, fewer goods were produced.
Consumer demand has increased as the economy recovers. As a result, international shipping has accelerated and ports are clogged.
As many as 41 container ships have been forced to lay at anchor waiting for a birth in the Los Angeles/Long Beach port, according to a report in the Seatrade Maritime News. Other ports are also jammed. As a result, there is now a backlog in rail shipping.
Economic Recovery and Consumer Spending
Some factors such as drought in Southeast Asia or a deep freeze in Texas are unpredictable forces of nature. However, they may not be as big as human actions.
People and computer models trying to forecast supply needs did not anticipate the economy rebounding as quickly as it has.
The ramped-up vaccine rollout and increased stimulus money have got more people out and spending. Consequently, we are buying more gas and ordering more products than businesses planned for.
Light at the End of the Funnel
One person who thinks the supply shortages will not last is Federal Reserve Chairman Jerome Powell.
“It’s not like the supply side will be unable to adapt to these things,” Powell said at a March 17 press conference. “It will—the market will clear. It just may take some time.”
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