Three Key Trends The Manufacturing Industry Faces In 2022, and Beyond – Part II: Inflation’s Impact
Inflation’s Impact Continues to Ripple Across All Manufacturing Industries in 2022
Inflation is not a temporary issue as suggested by government leaders in 2021. Suppliers and manufacturers cannot afford to absorb these rising costs within their operations. Instead, these higher operational costs are passed through the supply chain, leading to increased wholesale and consumer prices. With inflation at its highest in four decades, we can expect historically high prices for materials and finished goods. As inflation continues to rise, prices will keep increasing in line with the embedded higher costs in supplier manufacturing. Current manufacturing trends in 2022 indicate that these challenges will persist, further influencing the economic landscape.
Chart Source: US Bureau of Labor Statistics US Inflation Rate data compiled by TradingEconomics.com
Inflation has become the most significant factor to almost every aspect of manufacturing operations – wages, insurances, facilities, utilities, travel, and much more, beyond the already notable leaps in material cost. Further, inflation is now perceived to be structural in the commerce of the goods and services we and our industry peers deliver. It is driving what we and our peers feel could be an irreversible condition to the formulation and fulfillment of future sales offers.
With price hikes for materials continuing to be significantly higher than their respective price index’s growth, expectations for soft increases have all but disappeared. Consider aerospace parts manufacturing data and pricing trends. The price changes on many commonly used engineered materials used in a custom part’s manufacture have exceeded 20% year over year, creating a force majeure condition in some instances for some manufacturers. Compounding that, as energy costs continue to increase, freight costs on inbound (to the fabricator) raw materials and outbound (to the customer) finished goods continues to grow. That said, passing on higher prices at distinctly higher year over year rates is the only way manufacturers can meet their financial obligations. It is an untenable financial proposition to hold to cost escalation parameters developed years ago when inflation was 3% or less.
Chart Source: US Federal Reserve US Producer Price Index (Aerospace Product and Parts Manufacturing) data compiled by TradingEconomics.com