Supply crunch may make cup of coffee more costly

Consumers should brace themselves for price increases on all kinds of goods — from new appliances to their morning coffee, says a new report from TD Economics.

The reason? Global supply chains are getting squeezed, causing shipping costs to rise. That, along with a shortage of key manufacturing components such as semiconductors, is raising prices for businesses. And it’s only a matter of time before firms pass those increases onto consumers.

The report breaks down what’s going on with the world’s supply chains and where we can expect things to go from here.

It all started with the onset of the pandemic in 2020. Lockdowns stranded empty shipping containers across Europe and the United States as demand tanked. In the second half of the year, however, demand bounced back. That caused rates for shipping freight to climb “because too much money was chasing too few containers,” writes TD Senior Economist Sohaib Shahid.

But that was just the beginning. In February 2021, a ship blocked the Suez Canal, exacerbating shipping container shortages. Ships were forced to take long, expensive detours, which increased costs even more. While the blockage didn’t last long, those delays are expected to have an impact on supply chains for months, Shahid writes.

Adding to the pain is a semiconductor shortage. Increased global demand and stockpiling by companies worried about getting future shipments have made the problem worse. The auto industry has born the brunt of the shortage, but the impact is spreading. Appliance and computer production are now being affected, too. Amid all this, consumer demand for these goods is expected to jump as lockdowns and other virus-related restrictions ease

and people start spending again.

It’s no surprise then that business costs are rising. Producer prices are up 0.9 per cent quarter-on-quarter, the report says, which is much higher than the averages of the past two years (clocking in at minus-0.2 per cent in 2020 and 0.1 per cent in 2019).

Businesses will need to decide if they’re going to pass those costs onto consumers. And chances are, writes Shahid, they will. In the United States, Whirlpool has already

said they’d increase prices on appliances until the end of June. Proctor & Gamble has also said to expect higher prices starting in September. Prices are rising globally, too. The report points out that some toy wholesalers in China have already raised prices by 15 per cent.

“The impact of these developments on CPI inflation is not a matter of ‘if’ but ‘when,’” Shahid writes. “So, if the price of your coffee hasn’t gone up yet, don’t think it won’t go up in a few months from now.”