The Inflation Danger of 2023
There is a widely held theory, developed only recently, that the upward pace of inflation has begun to slow. The producer price index was up only 8.8% last month. While that is a slight improvement, the number is still higher than it has been for a decade. And it could rise into the double digits again. From supply chain problems that have not been solved to high diesel fuel to possible geopolitical disasters, price increases could surge well above what they were earlier this year.
The inflation rate was close to 10%, and there was a concern at midyear that this might move to 12% or higher. In the United States, that has not been the case. However, in Europe, the problem has worsened. The United Kingdom just posted an inflation rate of 11.1%, which is a 41-year high. The prices of energy and fuel were the primary culprits.
Americans will not be spared these problems. While fuel prices have dropped, OPEC+ has lowered production, among other things, to make more money per barrel. And sanctions against Russia could further cut its oil production and raise its prices, partly because it wants to pressure NATO to stay out of its war with Ukraine. Additionally, U.S. oil companies have said they have had almost no incentive to increase exploration. Even if they did so now, it could take years for this to yield large production increases.
Food prices in the United States have continued to stay high. For staples like butter and eggs, prices increase by double-digit percentages.
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Food transportation remains a major problem. This is partly because waterways used to move food have been hit by dry spells that have dropped water levels to where they cannot be used for commercial transportation. For food and other products that must be transported by truck, diesel prices are near all-time highs, and there are also shortages.
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Grain shortages worldwide have become an issue. Shipments from Ukraine, a major global provider of grain, have almost disappeared due to the Russian invasion. The United States cannot make up for this. Ironically, this is partially due to transportation problems.
Next year will see greater inflation than many optimists believe today. This will be evident by early in the new year.
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