Big business bosses warn supply chain issues and inflation are here to stay
A truck picks up a shipping container at the Port of Savannah, Georgia. The supply chain crisis has created a backlog of nearly 80,000 sea containers at this port, the third largest container port in the United States, with some 20 ships anchored off the Atlantic coast, waiting to unload their cargo.
Paul Hennessy | LightRocket | Getty Images
LONDON – Senior executives from several blue-chip European companies have told CNBC that supply chain problems, labor shortages and inflationary pressures will last longer than policymakers expect.
The most recent inflation readings have done little to allay concerns about stiffer inflation. The U.S. consumer price index jumped 6.2% in October from a year ago, official figures revealed on Wednesday, the largest annual increase in 30 years and far exceeding the target of the US Federal Reserve.
Chinese producer price index inflation jumped 13.5% per year in October, while the US PPI rose 8.6% per year, tying an all-time high.
Businesses around the world are battling supply chain bottlenecks as a post-pandemic spike in demand converges with industrial production struggling to catch up after long shutdowns induced by Covid.
Ahold Delhaize CFO Natalie Knight told CNBC on Wednesday that while she was confident in the Belgian-Dutch grocer’s strategy to deal with such pressures, they showed no signs of slowing down.
“I think what we are really seeing is that inflation is going up, but what I would also say is that when you look at food it’s a smaller part of the portfolio than some of the other categories, and we certainly see other areas where inflation looks a lot higher than in our industry, ”Knight said.
Knight suggested that the rise in consumer prices will continue until the fourth quarter. She said that Ahold Delhaize strives to ensure that price increases are not passed on to customers.
“We work with suppliers, we work with economists to make sure we have the right ‘should’ models, so that we can only really accept the prices that are absolutely necessary,” she added. .
On the job, Knight said the company has noticed a divergence between a robust supply in Europe, which has normalized to around pre-Covid levels, and the United States, where there are “bumps in the road” when it comes to recruiting. She also said there were certain “pressure points” in the job market, particularly in transportation and distribution.
“I think our vacancy rates are pretty consistent, but we’re working a lot harder to keep them that way,” added Knight.
Policymakers at major central banks have widely argued that the period of high inflation in their respective economies and the global supply issues that fuel it are “transitory.” However, many companies have warned of increased cost pressures in their third quarter earnings reports in recent weeks.
Managing supply issues, a “core skill”
Supply chain problems have been exacerbated in different parts of the world by various geopolitical factors. For example, power shortages in China have affected production in recent months, while in the UK Brexit has largely contributed to the shortage of truck drivers and farm workers.
However, concerns about the persistence of these problems were echoed by Siemens Energy CEO Christian Bruch, who told CNBC on Wednesday that the industrial world will face this “for a while”.
“It’s going to be good in 2022 and honestly my belief is that supply chain management will be something that will be with us to [a long time],” he said.
“It will be a really essential skill for companies like us, making sure that you can deal with these shortages and problems in the supply chain, not only on the hardware side but also on the logistics side.”
Bruch said the energy industry in particular should improve its management of shortages, given the increased demand for raw materials needed for the promised transition to renewables.
“Inflationary pressure in two decades”
Inflation in the UK unexpectedly slowed to 3.1% per year in September, but analysts expect a brief respite after August’s 3.2% rise was the largest since the records began in 1997.
The Bank of England expects consumer price inflation to reach 5% before moderating in late 2022 and through 2023, but Standard Chartered CEO Bill Winters recently said to CNBC that his bank’s recent experience indicates that higher inflation would become structural.
“I see wage pressures all over the place we go, we see labor shortages, and of course there are friction costs, which should ease over time, there are the prices of energy, which I think will stay high for a while because economic activity is strong, ”Winters said.
“It tells me that inflation expectations are taking hold.”
Following Unilever’s results at the end of October, CEO Alan Jope said the British consumer goods giant was witnessing “once in two decades of inflationary pressures”.
“We are seeing commodity inflation for all types of input costs we have – agricultural commodities, petrochemicals, paper and cardboard, transport, logistics, energy, labor – all are moving in an upward direction,” a- he declared.
“Our first instinct is to run our productivity programs and try to save as much money as possible and avoid taking prices, but it’s inflationary pressure once in two decades and so we’ve increased the costs.”