Inflation has started to rear its head. It is forecast to be 4% by the end of the year.
The Bank of England is dithering about interest rate rises, the preferred mechanism for controlling inflation. This would make money more expensive to borrow and consequently dampen demand. Lower demand and an unchanged supply would tend to slow price increases as businesses reduce prices to maintain sales.
Presently, the slow down in supply lines due to COVID and in part to Brexit has added its own push to inflation. Simply put, buyers are willing to pay more to secure supplies.
This in turn means that affected businesses face increased costs and to maintain profits they need to increase their prices.
This merry-go-round of price increases will continue until one of two things happens:
- Supply lines resume normal service, or
- Demand reduces.
As we are now attempting to recover from some of the economic challenges of the past two years, the second option is unlikely to apply, and according to the UK transport industry, limitations on the use of overseas’ drivers will restrict their ability to cope with present difficulties.
Which leaves the rest of us between a rock and a hard place.
Unless supply lines open up and we can return to business as usual, prices of delivered goods will continue to rise, including fuel and power.
Traders will then be faced with increasing their own prices to maintain profits and cashflow, which in turn may create the opposite effect as customers shop around for cheaper prices.