There are many forces at play right now and more complicated that the average Joe really understands.
1. The Pandemic - this was the catalyst not the cause of shortages, shortages lead to supply/ demand going out of balance and thus higher prices ensued . Federal free money (Covid stimulus checks) while necessary to keep some people afloat they forced out of work through the demand curve way outside the normal. It also upset the labor market. Some people decided not to work even when they could.
2. The Federal Reserve printing money since QE1 (circa - Nov 2008) which accelerated through QE4 expanding the Fed balance sheet has created a glut of cash in the economy and very low interest rates, this further disrupts the supply/demand balance. Cheap money encourages poor spending decisions. When a 5 yr loan is 1% people borrow more money and buy more crap.
3. Energy costs have soared. It began well before Putin attacked Ukraine. A couple things happened here. One when the economy began to turn back on demand for fuel outpaced production. Oil and gas companies were caught in a bullwhip effect. In June of 2020 there was a glut of crude oil that left them scrambling to find space to store oversupply. Crude tumbled to $9.12 a barrel in April 21. When the world economy started to turn back on suppliers had basically turned off the spigot.
4. New leadership - our new President enacted policies that make it challenging to explore oil and drill for oil and gas. He stopped renewing off shore drilling leases and exploring or drilling on Federal lands. Billions invested by oil companies in pipelines were scrapped and sit partially complete or dormant meaning fuel has to be trucked and brought in on rail. He had publicly stated in his campaign he would End All Fossil Fuels. The oil companies have decided it’s too risky to invest in further production so they aren’t producing as much and in an unfriendly environment can take consumers to the cleaners with low supply.
5. Putin steps in and kicked over the apple cart. With sanctions on Russian, oil and gas supply’s are further inhibited. Russia is rich in natural resources, fertilizer, minerals, lumber, grain. Ukraine was also. Now we have soaring prices on things like Nickel, copper etc.
6. Labor shortages - Again the pandemic caused a major disruption in America’s labor force, some have referred it as the “Great Resignation” in 2021 47 million Americans quit their jobs. Labor is way more expensive now and this directly impacts a companies bottom line.
When China stops the lock downs and comes back online, we are really going to see energy prices soar. Hold on for a wild ride.
Cliff, great story about the landlord. This is how it’s supposed to work. You raise prices too much people go somewhere else. This is how the free market is supposed to work BUT in our modern complex society we have serious barriers to entry now. Oil companies or chip manufacturers don’t have to worry so much about competition driving prices down because you just can’t build a chip factory overnight or a oil mining company, These companies have the market by the balls now. This is not how the market is supposed to work. What’s supposed to happen is competition is supposed to drive prices down but that can’t happen now in many markets.
Trying not to to be political just trying to lay it all out there, because there is a complete lack of understanding out there..