This Jump In Inflation Won’t Be Transient
Get ready for some Sticker Shock
Post by Tyler Durden | Written By Bloomberg Markets Live reporter and commentator Vincent Cignarella
Semiconductor Costs Could Lead to a Shock This Fall
Consumer confidence is key to how people plan to spend. You can see it in the chart below. And as the chip shortage grows, expect the higher prices to begin showing up in products, which could dampen confidence and eventually stall consumer spending.
The recent surge in chip prices hasn’t affected consumers, and stimulus has kept spending up while confidence has lagged. But that will soon change. Manufacturers have been eating the increase costs and not passing them on to consumers. With chip prices expected to rise every quarter this year, many companies will be unable to keep swallowing it, especially those with tight margins.
Manufacturers order semiconductors six months in advance. The choke points along the supply chain driving up prices and creating shortages will come to a head in the third quarter, when the next orders to replace inventories are delivered, according to the founder of SouthBay Research Andrew Zatlin.
Automakers will struggle to hold the line. At General Motors, for example, roughly 5% of the cost of goods sold is from semiconductors. The company has 11% margins, and a surge in chip prices will hit profits hard, according to Zatlin. And small business who sell to the likes of Amazon and Walmart with tight retail margins will be forced to raise prices even higher.
The impact should only spread from there. Which is why this jump in inflation won’t be transient as the Fed hopes. Every manufacturer with tight margins will be forced to raise and maintain higher prices. So get ready for some serious sticker shock very soon.
(TLB) published this article from a Post by Tyler Durden | Written By Bloomberg Markets Live reporter and commentator Vincent Cignarella
Header featured image (edited) credit: AP photo
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