Why Lots of Things We Buy Are Getting More Expensive…

The global economy is seeing shortages and historically high prices for things such as lumber, computer chips, plastic resins, corrugated board/boxes, and chicken – all products that have ripple effects into larger markets such as home construction, vehicle manufacturing, packaged goods, e-commerce shipments, and foodservice... what is going on here?

While there are often industry-specific challenges, there are several factors in common across much of the economy:

• Shipping issues – there are shortages of containers (or containers in the wrong places), lags in unloading at ports, and shortages of commercial truckers that are slowing road transport
• Supply constraint
• • from facility shutdowns or slowdowns, whether due to severe weather (e.g., processors of plastic resins were shut down during the February storms in Texas and still haven't caught up) or COVID outbreaks or operational restrictions (e.g., chicken processors)
  • from an inability to ramp up production any faster as some were already operating at full capacity in 2020, and while major investments are planned or underway, there are supply bottle necks at the machinery production level too
• Demand-side issues as industries saw sales gains that were unprecedented, sudden, and even sustained

While some of these conditions existed in 2020, there were a lot of segments of the economy where we still didn’t see price increases until recently. Why not? Some retailers and manufacturers have had a sort of “decency pressure” on them…they haven't wanted to be seen as taking advantage of a pandemic so they have refrained from raising prices in some cases. However, that period is likely over. With more people vaccinated and fewer people dying, there will be less of a feeling that rising prices indicates profiteering in a crisis. Suppliers increasingly see their price increases as justified and fully in line with their rising costs.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research. Freedonia Custom Research is also available for questions requiring tailored market intelligence.