What’s Going On With Inflation of Consumer Goods in 2022?
Americans’ concern over rising prices is at a record high, according to a recent survey by the Federal Reserve Bank of New York. And these worries aren’t unfounded. A December Labor Department report shows that the price of consumer goods increased by 6.8% in November 2021 from the previous year.
During a recent quarterly earnings call with The Wall Street Journal, corporate leaders discussed the impact of inflation. According to the National Association of Manufacturers, “CEOs pointed to increased supply chain costs as the greatest current inflation-related stressor for their businesses. Material and transportation costs have increased substantially as shipping ports remain congested and backlogs delay the delivery of certain products.”
So, which products are going to see a price hike? Why are these items prone to inflation? What should businesses do? With all these burning questions, we reached out to our consumer-packaged goods (CPG) and manufacturing expert and CVP of Industry Strategies, Shri Hariharan, to get some answers.
Which products are going to see a price hike? Why?
Consumer staples: Across the board, everyday consumer staples in CPG, food and beverage, and home and garden have already experienced price increases. This will likely accelerate in 2022 as the gap between producer price and consumer price increases. After reconfiguring packaging and sizes — does anybody remember the ketchup packets conundrum of 2021? — unit prices have gone higher, so we predict manufacturers will pass along these costs to retailers and consumers.
Consumer durables: We’re continuing to see prices go up across home appliances, consumer electronics and automobiles, primarily due to the reliance on the already-strained semiconductor supply chain. Add on top the impacts of the Omicron variant on labor, and we don’t see prices for these items going down anytime soon.
Home prices: House prices continue their northward trend with most markets seeing their highest median prices due to consumers’ increased need for more space for virtual work and school. With such strong housing demand, record lumber prices and worker shortages, don’t expect to see drops in home prices in 2022.
Why are these items prone to inflation?
To answer this question, we need to look back at what has happened over the past two years:
Pent-up demand: In the first half of 2020, the world went into a deep freeze and demand fell drastically due to uncertainty and fears of COVID-19. Then we saw panic buying of essentials and the surge of e-commerce and contactless delivery.
Discretionary spending: Then came the release of that pent-up demand when discretionary spending from savings, stimulus checks and tax breaks drove consumers into alternate areas of spending. We saw massive increases in home buying, home improvement, wellness, apparel, and automobiles.
Logjams: When manufacturing, distribution and transportation lanes were jammed, the global supply chains that were built on lean and just-in-time principles were unable to recover. This remains a challenge still.
Demand-supply imbalance: The demand-supply imbalance has given rise to inflation. Wage increases meant more willingness to pay higher prices, and the cost of capital is so low that until supply improves, inflation will continue to be an issue. The impact is disproportional based on the income strata of the demographics and is a cause for concern for the lower income, hourly-waged-based workforce.
Reduced workforce: The December jobs report was quite weak. Millions of jobs are unfilled due to a reduction in women working, the all-time high in retirement of those over 55 and, of course, the great resignation.
Take all these items combined, and we have a perfect storm in the supply chain, causing enormous inflation rates across consumer staples, consumer durables and home prices.
What should businesses do to help with inflation?
A call to action for businesses: The pandemic has induced significant pressures and has either accelerated or permanently changed consumer behaviors and actions. Every company has the opportunity to find positives and take advantage of the situation to truly determine their purpose, business model, supply chain design, stakeholder engagement, and ESG initiatives — all woven together.
The role of technology in this will be far greater than ever before. Creating operating models based on transparency, collaboration, flexibility, and agility will be key for sustainably delivering the next Industrial Revolution with people, planet and profit.
Learn how Blue Yonder might be able to help you: blueyonder.com