Why energy and labour inflation are more important than supply chain issues

Humans and energy keep prices high

When speaking about stickiness of inflation, it is necessary  to consider which drivers of higher prices have the sturdiness to hang around. A primary component of the current increase is the global labour shortage.

“We are seeing inflation on the higher side of what we have had historically and one reason for that is labour shortages, which cause a more permanent high level of inflation, as they are pushing up wages in the USA, UK and in Europe to a degree we haven't seen for many decades, especially for lower income jobs like trucking and services,” Garnry says.

He adds that the rent and housing markets are also key in terms of pushing inflation higher, structurally: “We are also monitoring rent prices very closely, because as a whole other part of the pandemic story, we’ve seen them galloping because of very low interest rates.”

Another area of the financial industry, which can add to structural inflation, is the commodities market: “I think another area where we're also seeing price increase is in the most basic input of all - commodities. In 2021, we saw higher prices across all sectors. Energy, metals, agriculture. Agriculture is the worrying part because its prices were more than 30% above the annual average, and we’ve got weather phenomena making it realistic that we could see these high agricultural prices continue into 2022. 

The whole energy sector in Europe and Asia, is being hit by surging gas prices. Simultaneously, oil prices are at the highest they've been for a number of years. Normally the cure for high prices is high prices because it incentivizes production and lowers demand, but the green transformation paves the way for increasing energy prices continuing. That means that the demand side is lacking in that balancing activity,” says Ole Hansen, Head of Commodity Strategy.

According to Hansen, we shouldn’t expect prices to fall any time soon: “It basically means we could see energy prices elevated for the foreseeable future and since oil and gas are such integral parts in almost everything, it will be part of the structural price increases in society - just take a look at fertilizer. Who would have thought we could run out of fertilizer?” says Ole Hansen, Head of Commodity Strategy.

The inflationary container will be emptied at some point

So while there’s an argument to be made that inflation is here to stay, we may see some pressure being relieved in due time, as Garnry argues that increased prices of shipping should come down, if history provides any guidance: “The supply effects on inflation from increasing container freight prices are temporary - we will see container prices come down. The container and logistics industries have historically been industries with boom bust cycles, so when you have these high prices, more capacity is being built, ships are put in the sea, so I think those effects will move away. We will get there, it will just take some time,” he says.