January 25, 2023
As the country begins another year with concerns of inflation and continuing supply chain issues, it is important to look a little deeper and to find out if the economic environment is as dire as the media is presenting.
The theory is that if consumers are spending, inflation will be kept at bay and the good news is that consumers are spending. However, they are not spending as they did during COVID in 2020 and 2021. So, expectations of spending in 2022-23 are skewed. Additionally, because consumers bought so much then, they don’t need as much today, especially on large ticket items. The result is that a normalized sales cycle won’t like to happen for another 18 months. On a recent episode of National Public Radio’s Marketplace, (Consumers curb their spending), the Former Vice Chair of the Federal Reserve suggests it is not as bad as we think.
Alan Blinder, Professor of economics at Princeton University and former Vice Chair of the Federal Reserve says that inflation is not as bad as we think. The metrics would say that at 6.5%, inflation was up in December. Spending was up along with borrowing. However, today inflation is down and almost at a place where the Federal Reserve would have it at 2%. The feds use a measurement called the Personal consumption expenditure deflator and it actually runs higher than the CPI (consumer price index). Currently, the PCED is running at .5% higher than the CPI which is tracking inflation below 2.5% at 2%.
Sure, it is complicated but the long and short of it is that the numbers are considerably lower as we start the year and the forecast in trucking looks more than optimistic. The credit for the low number goes to falling oil prices over the last quarter even though they are up slightly at the end of January. The other factor for the decline in inflation is a virtual end to supply constrictions and blockages.
In fact, every measure is way down and almost back to pre-pandemic levels. And because the supply chain issues were driving inflation, we can be confident that there is relief in sight if not now. Alan Blinder provides some hope in that it is very unlikely that the supply chain issue will arise again this year. He says while the worries of COVID ravaging China could limit Chinese exports, it is still not likely that disruption on a grand scale will occur.
What is actually happening, however, is that the supply chain is shifting because of the global reaction to the issues over the past few years, and to that end, there is bad news and good news.
Some would speculate the main thing to watch with the supply chain could be keeping up with the demand of consumers. KPMG has outlined trends as follows:
While these trends might seem insurmountable for some, there are ways to approach the trends and set yourself up for success. KPMG suggests the following:
Supply chain activity, especially in trucking, will be important to watch and address as we head into 2023 but proactive planning can enable a seamless experience. So, if Alan Binder and those of his ilk are correct, then shoring supply chain issues will certainly help to shore up inflation.