Given our episodes today, we hit on different aspects of price, the supply chain is another place to look because of the supply / demand issue.

Price, if we strip out all of the government distortion, is nothing more than a balance point between demand (people wanting to buy) and supply (how much of it is available).

Here are 4 things to track to determine the supply chains impact on prices.

Topics:

• Freight Costs
• Integrated Logistical Systems
• Congestion at the Pinch points
• Does JIT (Just In Time) really work or is it back to JIC (Just in Case)

Given our opening statement about the misuse of credit - making the cost of borrowing too low and hiding the moral hazard of taking on debt, inflation was built into their policies. This is also the major cause of economic bubbles.

So what happens when inflation gets out of control? The standard response and one of several tools is to raise the cost of borrowing. By raising rates you make the borrower think smarter about the hazard of the loan especially if the market is contraction. This logical response harms a number of individuals and industries as unintended consequences. It destroys the housing industry: construction, real estate, etc. and the home owner. Suddenly your home is worth less and the number you can buy it shrinks because it is now outside their budget.

In the United States we have raised the interbank rate to 3.75% and will increase it in 2023 to 5-6%. Now add the usual 3% margin banks place on top of what they pay you have interest rates at 8 to 10%. And that is for the best customers, imagine the impact credit card rates?

The forecast for 2023 is the global interbank interest rates will stabilize around 4.25-4.5%. This is a world-wide number and what will happen in your country will be different.

There are many ways of computing inflation, but the universal metric is a mixture of PPI, CPI, CCI, and employment.

The PPI is the Producer Price Index and it is a measure of the costs producers are paying to deliver the products and services the sell. Another valid metric is the PMI - the Purchasing Managers Index. It measures their confidence in purchasing more raw materials (production) based upon purchase orders they are receiving. Both is these are leading indicators - what will happen.

The CPI is the Consumer Price Index and measures what consumers are paying. It is based on a basket of goods and services and measures how each item changes over time. This is a real time indicator - what is happening. A companion to this metric is the CCI. It measures how confident are consumers, based on the CPI, they are about the future. It has a direct impact on their willingness to purchase anything beyond the necessities.

Unemployment is a trailing indicator and measures the impact of a downturn in manufacturing and series - if you don't have the work, you don't the employees. The reason most companies are reluctant to start here because of the costs of layoffs even though it is tempting to start here. Labor makes up about 30% of your costs and a controllable expense.

The global forecast is inflation will continue until 1st or 2nd QTR of 2023 before beginning a decline. But that assumes the government and their central banks make the right moves.