Higher prices for materials naturally force manufacturers to increase costs for their customers. In the United States, a weakening dollar has left manufacturers with demands for higher prices from Chinese suppliers. Supply shortages for everything from raw materials, like steel and semiconductors, have made inflation an unavoidable reality. This impacts U.S. companies and global manufacturers alike.
Stronger Chinese Yuan Forcing Up Prices
In the last months of 2020, the Chinese yuan (CNY) weakened against the U.S. dollar (USD). Compared to January 2020, CNY declined by 7 percent compared to U.S. currency. In this situation, Chinese companies receive less compensation when paid in USD by U.S. companies. As a result, Chinese manufacturers are raising prices.
U.S. companies can expect to experience inflation when doing business with other international suppliers as well. Over the past year, the Australian dollar gained 17 percent over USD, and Euro dollars grew in value by 12 percent. Although many business contracts lock in exchange rates so that the parties may proceed in a somewhat predictable environment, the overall effect of the weakening USD will be continued inflation on consumer goods.
Prices Rise When Demand Outstrips Supply
Another inflationary force comes from demand exceeding supply. Supply shortages have driven price increases for European manufacturers on top of huge jumps in shipping costs. The German central bank predicts that inflation will reach levels not seen since the financial problems of 2008. Prices in Europe for 40-foot shipping containers coming from China have gone up to $8,000 according to data from Freightos.
With input costs reaching 10-year highs, the automotive and chemical industries in Europe have been suffering. Shortages of steel and semiconductors are prompting production cutbacks. Volkswagen may have to furlough thousands of employees.
What price increases and supply shortages have your company had to deal with this month? Comment with your experiences.
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ABOUT The German Central Bank
The Deutsche Bundesbank is the independent central bank of the Federal Republic of Germany. It has formed part of the Eurosystem since 1999, sharing responsibility with the other national central banks and the European Central Bank for the single currency, the euro.
Eurosystem monetary policy is the Bundesbank’s core business area. Its main task is to secure price stability in the euro area. This requires in-depth analyses, a long-term view and impartiality towards individual interests. The Bundesbank’s stability policy also relies on support from economic, fiscal and wage policy.
The Bundesbank is involved in many international institutions and committees that are dedicated to stabilising the financial system.