EP 559 | AIRED 10/11/2021
INFLATION and The Seafood Industry: Is The Worst Part Over?
October 11th, 2021--- Inflation has been on the rise since the tail-end of 2020, large in part due to the economy reopening - which resulted in higher consumer demand, and supply chain constraints. Although economists cannot forecast with certainty how much higher inflation will rise or how long it will persist - we can pinpoint some causes, to pick up as clues.
In this episode, our intentions are not to sound like economists, but rather, we wanted to break down SOME of the economics, to help understand how this relates to the seafood industry that we are all in together.
--- Perhaps one of the most telling signs of inflation is the relationship between the Producer Price Index (PPI) and the Consumer Price Index (CPI), according to Forbes economics writer Mike Patton.
The PPI measures the change in prices for goods and services at the producer level.
The CPI measures the change in prices consumers pay for products at the consumer level.
When manufacturers have to pay more to produce products, those higher costs are often passed onto consumers.
According to data from the U.S. Bureau of Labor Statistics, in July 2021, the PPI rose 7.7 percent year-over-year while the CPI rose 5.3 percent - meaning the Producer Price Index has been rising faster than the Consumer Price Index since January, suggesting higher prices at the consumer level are inevitable.
The seafood industry has been experiencing this with skyrocketing freight rates and raw materials shortages.
As companies are having issues sourcing raw materials and employees for labour, there will be a reduction in supply - and this coupled with increased consumer demand, are major catalysts for inflation.
--- A second significant cause for inflation can be pinned to government spending according to Patton
(In the U.S.), when the CARES Act passed in March 2020, it was greatly needed as without it, the U.S. would have gone into a dark period of depression.
Although the economy is considered to be doing very well right now, this is largely due to excessive federal spending.
However, as federal spending continues, it has also led to the largest government deficit in U.S. history.
In the fiscal year ending September 30, 2020, the U.S. had a $3.129 trillion dollar budget shortfall equating to more than twice the $1.4 trillion deficit during the 2008 financial crisis.
Providing consumers with money to spend has created an increase in demand for consumer goods, which has served to push inflation higher - however, if the government continues to spend at this rate, and supply chain issues persist, inflation will continue to rise.OCTOBER IS NATIONAL SEAFOOD MONTH -
Let's Commit to Purchasing Only Sustainable Seafood!
--- How long will inflation and supply chain issues endure?
Federal Reserve Chairman Jerome Powell told House lawmakers recently that this year’s surge in prices is “a function of supply-side bottlenecks that the central bank can’t control,” but also that “high inflation will abate, because the factors that are causing it are temporary and tied to the pandemic and the reopening of the economy.”
Adam Posen (president of the Peterson Institute for International Economics) can be noted saying “that’s probably about as bad as supply chain interruption gets”, “Probably the worst has already happened on this front, and it’s going to unwind and get better from here.”
In the seafood world, although freight rates out of China are to continue to rise, processing plants are predicting rates to get to their highest points in December and January, but then start to fall around March.
Our recommendation is to keep tuned-in to our 3-Minute Market Insight to keep current with market updates that can directly impact your business.
Together For A Big Blue Future - Marine Stewardship Council
--- If you are not already, be sure to subscribe to our 3-Minute Market Insight using the signup form below to keep tuned-in to all upcoming market insights.