Australia’s Supply Chain Crisis
Published 5:23 am 29 Oct 2021
Supply chain issues and labour shortages are placing pressure on food prices and triggering inflation. Will this trigger an interest rate hike?
The humble timber pallet has recently become symbolic of Australia’s growing supply chain issues.
The term ‘Pallet-gate’ was coined by Coles’ CEO Steven Cain, who referred to the shortage of wooden pallets upon which stock could be placed and transported.
“Across the nation, there is a bit of pallet-gate going on,” said Cain.
“The lack of wood means not many new ones are being produced, there’s this surging consumer demand, and a lot of the non-food retailers are locked up in Victoria until Friday, and they’ve got a lot of pallets there,” added the Coles CEO.
Not only is there a global timber shortage due to COVID-19, but the lockdowns forced Victoria’s manufacturing sector to shut, which has prevented pallets from being spread around Australia to various warehouses that require them.
Cain’s concerns about pallet shortages were echoed by Woolworths’ CEO Brad Banducci who stated:
“We started by not getting access to shipping capacity. Then there were issues about getting access to containers. And now the big issue is making sure we all get access to pallets,” Banducci said.
In response to the shortage of pallets, Australia’s supermarket giants are coalescing to establish a pallet task force so that they can all continue getting their goods into warehouses.
However, according to Banducci, the cost of shipping a container from overseas has risen from $1,000 to $4,500 in just the last 12 months.
Will inflation cause a cash rate hike?
As inflation rises across the world – including in the U.S., U.K. and New Zealand – Australia is the latest country to join the chaos.
As a result, Australia’s underlying annual inflation rose by 2.1% over the September quarter, landing within the RBA’s target range of 2-3% for the first time in six years.
Rising petrol prices, in particular, have been a significant driver of this inflation, with prices increasing roughly 40% since April last year.
This inflation came as a surprise to the RBA, who had predicted that inflation would not reach 2% until mid-2023 and that as a result, it could maintain cash rates at 0.1% until 2024.
Now, with underlying inflation finally back within the RBA’s target range and other countries raising their cash rates, questions about cash rate hikes in Australia have returned.
Following the release of Australia’s inflation numbers, the bond market began to bet against the RBA, predicting that a cash rate will come sooner than 2024.
“Inflationary pressures are clearly building and the market is pricing in the bringing-forward of interest rates, and we could see official rates rise two times by the end of 2022,” said Russel Chesler, the head of investments at VanEck.
“We are especially seeing upward pressure on 3- and 5-year government bonds, whose yields have jumped 20 basis points from yesterday, which is a big move.
“Bond yields are rising across the globe as inflationary fears balloon with increasing talk of stagflation. US Treasuries could see their worst year of losses as inflation surges and bottlenecks and cost pressures build.”
On top of this, analyst Martin North has said that banks are beginning to encourage borrowers toward variable rates in anticipation of a series of RBA rate hikes.
“What that means is they are now taking out their own insurance policies that if (short term) rates move up faster, they can put those mortgage rates up faster,” he explained.
Is this the way to fight inflation?
With fuel and food prices climbing and wages remaining stagnant, money simply doesn’t go as far as it used to.
Not only that, but the tried-and-true method of fighting inflation – purchasing a home – is becoming more difficult thanks to APRA’s newly tightened lending conditions, and an interest rate hike on the horizon.
So how can Australians combat inflation?
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