12-Month Change in Prices – October 2020 to October 2021 (Source: Bureau of Economic Analysis)
All Items All Food
6.2% 5.3%
Meats, poultry, fish, and eggs
11.9% 30.0% 49.6% 28.1%
All Energy Gasoline
Natural gas
New Cars Used Cars
9.2%
26.4%
Sporting Goods (including bikes)
8.4%
Furniture and Bedding Lodging away from home Car and Truck Rental
12.6% 22.8% 39.1%
While COVID was the driving force in creating demand and supply imbalances in not only the U.S. but also globally, COVID also magnified other issues that contributed to inflation. Although COVID was the driving force behind inflation, there wasn’t just one factor causing inflation. Depending on the product, price increases were caused by different factors. Global Economic Recovery On the demand side, COVID caused a global economic contraction in 2020. In 2021, it’s not just the U.S. economy that is recovering, it’s also the global economy. According to the International Monetary Fund (IMF), in late 2021 the global economic recovery continues amid a resurging pandemic with unique policy challenges. After declining 3.1% in 2020, global GDP is expected to increase 6.0% in 2022 and 4.9% on 2023. That dramatic reversal in economic growth increases the demand for products and services globally (including energy) and strains pandemic affected supply chains. Energy Prices The strong rebound in global economic growth contributed to a significant rise in energy prices. And when energy prices increase, prices of almost everything will increase. Almost everything you buy gets delivered by a truck. And it’s not just the United States facing increased energy costs, it’s global. According to the IMF, as of late October 2021, “spot prices for natural gas have more than quadrupled to record levels in Europe and Asia, and the persistence and global dimension of these price spikes are unprecedented”. Brent crude oil prices, the global benchmark, recently reached a seven-year high and quadrupled in 2021 relative to 2020. Overall, U.S. energy prices increased 30 percent between October 2020 and October 2021, with gasoline prices increasing 49.6% and natural gas increasing 28.1%. 2021 featured a global imbalance of demand and supply in the energy sector. The impact of COVID globally caused a collapse of energy consumption in 2020, leading energy companies to cut investments and supplies. However, consumption of natural gas rebounded fast with the global economy. Industrial production accounts for about 20 percent of final natural gas consumption, and the economic rebound boosted demand at a time when supplies were relatively low. Energy supply has also been impacted by weather, labor shortages, maintenance backlogs, and infrastructure issues. Supply Chain COVID also magnified other issues that contributed to inflation. World-wide demand for semiconductors grew significantly 2020 and 2021, as sales of consumer electronics ramped up and new technologies developed in the auto industry. However, the bulk of semiconductors are produced in Asia, including Taiwan, South Korea, China, and Vietnam. Supply chain issues, including the impact of COVID on the supply chain, contributed to a semiconductor
Central Wisconsin Report - Fall 2021
9
Made with FlippingBook Learn more on our blog