Below is an excerpt from the next post I'm working on...

Aristotle is the first person (on record) to explain the concept of emergent properties. A whole being more than the sum of its parts is the idea underlying Chaos Theory and Complexity Science. Inflation is part of a complex system (price setting) within a larger complex system (human economies). Stock markets

(like inflation) would be an example of a complex system that is part of the

larger complex system of price setting. The global economy is like a Russian

Nesting doll of complex system.

In the long run I believe that inflation is impossible to predict. However, I have a personal connection to a small chemical manufacturer based in the southeast United States, and thought I'd talk about (using real world anecdotes) how inflation has been impacting them since Covid started. There are takeaways for the transitory vs. here-to-stay debate.

I was inspired to write this post after seeing takes like the following:

-said no one ever.

The below image shows the stock prices since the beginning of 2018 of the two companies Bernie and Liz call out, Exxon Mobile and Sanderson Farms – vs. the performance of the S&P 500 index, the Nasdaq 100 index, and a clean energy fund. It is clearly lost on them that among all companies – commodity producers have the least pricing power.

Quick background on the business before we get started with our anecdotes.

It’s a small chemical manufacturer that mostly makes chemicals for the auto detailing industry (spray waxes, polishing compounds, leather cleaners, etc). It was founded in 1989 and has 26 employees. It is a family-owned business. Below are some stats about the purchase volume of certain items over the course of an average year:

Our story starts in January of 2020.

The business is growing and life is good. Isopropyl alcohol (henceforth: IPA) – a key ingredient in products ranging from glass cleaner to polishing compounds – is $0.82 per pound. The business gets an order from a customer which requires IPA, so it calls its normal supplier and orders 12 drums. Each drum is 355 lbs, so each drum costs: $291.10

The IPA arrives within a few days because it is kept in stock.

The business needs some bottles and tops to fulfill the order. They are ordered and arrive within a week because they are also kept in stock.

Neither the IPA nor the bottles or tops have increased in price over the past year. So, there has been no need to increase the price to the businesses’ customer.

Life is good.

March 16th, 2020 https://trumpwhitehouse.archives.gov/articles/15-days-slow-spread/

President Trump tells the country it needs to shut itself in for 15 days to slow the spread of Covid-19 so that hospitals do not become overwhelmed.

March 17th, 2020 https://www.geekwire.com/2020/amazon-warehouses-will-stop-accepting-non-essential-items-company-triages-amid-covid-19-outbreak/

Amazon announces it will stop accepting nonessential items to warehouses.

Overnight the small business’s sales drop by 30%. Many of their products are sold on Amazon but none of them qualify as “essential”. It gets worse. The next time the business goes to place an order for bottles – they’re out of stock. They call 3 more suppliers and it’s the same in every case. Eventually they find some bottles that are the right size, but they’re a different color. Same thing happens with tops. All plastic nationwide has been re-directed to manufacturers of cleaning products.

The business – like many in the chemical and brewing industries at the time – started making hand sanitizer. Because bottles and tops were impossible to find in the United States (or prohibitively expensive), the small business for the first time ever ordered them from China. The cost to ship a 40’ container was around $3,500 (now it costs upwards of $20k). The cost of IPA – the key ingredient in hand sanitizer – was $1.44 per pound, nearly a 100% increase.

The hand sanitizer sold as fast as they could make it, but the cost of IPA kept changing. By May 15th the price per pound had increased to $2.53/lb. But unlike before, by May it was impossible to find IPA from their usual suppliers, so it had to be shipped in from wherever in the country they could locate it. Extra shipping costs brought the total per pound to $2.72. That’s a 3.32X increase from what they had paid in January.

The price of IPA topped out at $3.83 per pound, but it didn’t stay there long. By August the price had plummeted to $1.21.

Today, the price of IPA fluctuates around $1.40. Still an increase of 71% above where it started, but far below the peak. Plastic Bottles and tops have increased in price (more below) but they can once again be ordered from US based suppliers. Lead times for some bottles and tops are still measured in months rather than weeks, but they are steadily coming down. Products that used to be held in stock are actually in stock about half the time.

Shortages still abound, and they remain unpredictable. Chemicals that have seen only moderate price increases and which have remained in-stock and easy to access since the beginning of Covid-19 will (seemingly) randomly be placed on months-long backorders.

I'll leave you with a teaser: Since the beginning of 2021, inflation has been spreading as fast as the Delta variant of Covid-19.