Inflation Is Just One Price for the Global Economy

This story is part of our July 2022 Young Professionals print issue. To subscribe, click here.

It only takes a trip to the corner gas station to see firsthand
what the headlines are telling us about inflation. Of course, we
always expect gas prices to go up during the summer driving
season. It’s as predictable every year as a 100-degree day at the
California State Fair. But this year, record gas prices are a
barometer of a much bigger problem. The latest U.S. Labor
Department reports show that the price of everything is going up
at a record pace. Inflation — the cost of goods and services
compared to a year ago — is now over 9 percent, the highest it’s
been in nearly 40 years. A big reason is the cost of energy,
which increased significantly in the past year. Since almost
everything we eat, wear or use is delivered by trucks, airplanes
and ships that rely on oil, a price increase that large has a
ripple effect across the whole economy.

But the biggest reasons for the jump in energy prices and the
rise of inflation worldwide are far more complicated than the
price at the gas pump. Droughts, floods and war are shaping,
making and breaking markets. As products move around the world —
and manufacturing involves processing in many different countries
— local businesses, from farmers to small entrepreneurs, often
are small pieces of a larger global economic jigsaw puzzle.

In this issue, our story “Seeds of Conflict” follows the
connections between those bright yellow acres of sunflowers along
Interstate 80 and the war-ravaged fields of Ukraine. Some of us
see them as a picturesque photo opportunity, but they are
actually a factory of sorts, producing hybrid sunflower seeds to
be planted by farmers in Ukraine and other countries to produce
cooking oil sold throughout the world. But many Ukrainian fields
are fallow and under attack in a war, reducing the country’s
sunflower production by 40 percent and reducing the need for
seeds from Yolo County farmers. By contrast, as the war has
slowed exports of wheat from Russia and Ukraine, two of the
world’s largest producers, wheat farmers in the Capital Region
and other parts of the country have seen the price of their crop
double.

At the same time, a stagnant economy in China, hobbled by
COVID-related shutdowns that continue in some of its biggest
cities, has stifled manufacturing. Flooding in some of its
biggest ports has created shipping bottlenecks that have broken
down supply chains and produced inventory shortages for business.
As you can read in our Special Section on construction, China’s
pain is, to some extent, our region’s gain.

Demand for industrial and manufacturing space has grown,
expanding development at Metro Air Park, McClellan and Mather to
double normal levels, as distribution companies look to hedge
against shortages by stockpiling material domestically, a
practice known as “nearshoring.” As one developer told us,
distribution companies have traded “just in time” inventory
management for “just in case.” And in this case, it’s to the
Capital Region’s
benefit.                                       

These stories underscore how intertwined local and international
markets are in a global economy. Disruptions come with a price,
whether it be a disappointed customer, a lost market share, or
high costs — inflation — when supply and demand are out of
balance.

But just as every action sparks a reaction, so too do events on
one side of the globe have the potential to create both setbacks
and opportunity on the other side. Growers, for instance, can
reduce the acres they devote to sunflowers to better control
their costs. Builders facing a 40 percent increase in lumber
prices might find a substitute material or decide to change their
designs.

It’s a reminder that the marketplace is always dynamic,
constantly offering challenges and opportunities, whether for a
large company or a smaller
entrepreneur.       

In a survey of 1,199 entrepreneurs released in June by SCORE, a
mentoring organization for small business, 93 percent said they
were concerned about inflation, outranking concerns about taxes
and government regulation. And 34 percent said it was the single
biggest problem facing their business. 

But on the bright side, the SCORE survey showed that
entrepreneurs are not letting inflation slow them down. Fifty-one
percent reported that they had made recent capital investments to
buy new equipment, new vehicles or to expand their facilities,
despite increases in costs. In short, inflation is a lot like the
weather. We are all affected by it, we all talk about it, and
most of us can’t control it any more than we can curb drought,
floods or war. It’s simply part of the landscape that businesses
learn to navigate to remain successful.   

Winnie Comstock-Carlson
President and Publisher

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