Each problem in an economy can be boiled into simple demand and supply. Supply chain bottlenecks add to these problems and simply make them worse.
Let’s see the most recent example of the above-stated fact.
Gas chaos:
After semiconductor, shipping, and talent. The next battle seems to be for natural gas, all across Europe & the US.
Let’s take it from the top, the winter season has begun in the western world. In winters, people need more heating, more light to keep the environment warm. Essentially, there’s more demand for power and electricity.
If there’s a shortage of something, it’s due to the classical case of economics: High demand, low supply. That’s exactly what panned in this case.
Supply-side issues:
Low Liquified Natural Gas (LNG) deliveries happened to Europe, most of it was diverted to the Asian markets. Add to this, the lack of storage facilities of carbon dioxide gas (CO2), and the low supply from Russia.
Put everything together and you get a massive supply-led shortage, and high demand, a classic case of price rise/inflation.
Next most common: Spillover
When you connect the dots, you get an economy, it’s interconnected! So, when there’s a price rise at the base level (production level), it will pass on to the other sectors (food, shopping, beverage, etc).
Gas is used in slaughtering animals, extending the shelf-life of any food article, and gets used in carbonated drinks’ manufacturing. All in all, the food & beverage industry is highly interlinked with the gas industry, hence higher prices will be transferred from the energy companies to food producers and eventually to consumers.
Hence, households and consumers can expect a great hit to their wallets this winter!
What is the Govt up to?
Lastly touching upon how the Govt can get into the picture to normalize things. First, the Spanish Cabinet is capping the power bills for the consumers by transferring profits from energy companies to consumers’ coffers.
As far as Greece is concerned, they’re following a more traditional approach, subsidies. Control the winter bills by giving cash incentives to the households.
So, things are currently not looking good for Europe & US where the prices have surged almost 280% & 100% respectively until this year.
What do you think, how quickly the situation will be normalized?