The Cause & Effect Relationship Between Inflation & Supply Chain

What came first, the chicken or the egg? For that matter, which causes, inflation or supply chain issues? Inflation hasn’t been this bad in nearly half a century, rising to 7% this year, with the potential to rise even further.

We decided to dive into the cause-and-effect relationship between inflation and the supply chain to see if we can untangle the problem. Can fixing one fix the other? Are they inseparable? Let’s find out!

Supply Chain: Labor Shortages & Bottlenecking Created Shipping Delays

We faced a lot of unorthodox, global problems in the last few years. The pandemic being one. While we felt the supply chain issues in 2021, the tsunami that is the supply chain “storm surge” is just now arriving and everyone is feeling it.

Labor shortages caused by a variety of reasons are causing bottlenecking at ports and transportation hubs around the world. These factors cause shipping delays that get exponentially worse. Think of a traffic jam, and how every bumper-to-bumper commute was first caused by a single car. The same is true for the supply chain.

Supply Chain: Consumer Spending Exploded

Labor shortages, check. Shipping delays, check. What else could go wrong? Unfortunately, as we exit our 3-year pandemic, global spending has surged to unprecedented numbers. Of course, this would happen when the global supply chain is having the trouble of its life.

Inflation: Reduced Supply & Increased Demand Raised Prices

You’ve heard of supply and demand, right? To put it simply, if supply is low but demand is high, businesses must raise their prices to meet their revenue goals. Today, supply has never been lower, and demand has never been higher, meaning that prices are going up and up. As prices increase so quickly, inflation occurs.

Supply Chain: Inventory, Once Delayed, Will Take a While to Catch Up

Trust us; as a 3^rd Party Logistics Company, we understand more than anyone the importance of mastering your supply chain. The number one reason is that you should think of your supply chain as a giant behemoth. It has many appendages, and it’s so big that it’s very slow to react to change. We’re already in that critical part of the story where the supply chain needs to pivot, but simply lacks the speed to do it in a timely fashion.

Inflation: It’s More Expensive Than Ever to Manufacture

As inflation occurs, it affects every corner of every industry. While you might do a double take at the price of a dozen eggs at your local supermarket, think about the manufacturing industries that are seeing the price of their materials double or triple in price. When inflation hits manufacturing, the effects ripple outward and are felt by everyone.

Inflation: As Prices Rise & Wages Remain the Same, Labor Shortages Port Congestion

We mentioned the labor shortage earlier. One cause of this shortage is inflation, believe it or not! While minimum wage might have looked good even a year ago, today it could feel like you’re actually losing money due to the effect inflation has on our daily spending. This makes many people reticent to take just any job, which means many key industries are struggling to hire enough labor. Either wages need to increase (at a loss of revenue) or inflation needs to make those jobs more attractive again. What happens when there is a labor shortage? We kindly ask you to go back to the top of this article!

Inflation & Supply Chain: The Ripple Effect & the Self-Perpetuating Cycle

The truth is, there is no way to untangle inflation and the supply chain. The two are intrinsically connected. It truly is the chicken and the egg scenario; a paradox where one can’t beget the other, they simply co-exist. The self-perpetuating cycle can be minimized, however, by careful planning.

The best way to fight inflation and supply chain woes is through a 3PL. Getting a handle on your supply chain, ensuring you have inventory, and mitigating shipping delays can go a long way toward reducing the impact of inflation. And, as you combat inflation, you also combat the supply chain. See how they work together?

Are you interested in a third-party logistics service? We handle logistics, transportation, warehousing, and everything else you might need. Reach out to us today.