Shortages at all levels

By Camille FratiLex Kleren Switch to French for original article

Semi-conductors, sunflower oil, wheat... The list of raw materials or components that manufacturers and consumers alike are lacking has been growing for several months. And it takes more than one factor to explain it.

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Images of empty shelves are reappearing on our TV screens, reminiscent of the first weeks of the lockdown in spring 2020 to stop a still poorly understood Covid-19 pandemic. This time, it is not pasta and toilet paper that are missing, but sunflower oil and mustard. Above all, inflation is well above the 2 per cent ceiling recommended and highly monitored by the European Central Bank (ECB). Food prices rose by 1.3 per cent between March and April 2022. This increase was driven by meat (+2.4%), fresh vegetables (+3.7%), dairy products including cheese and eggs (+1.2%) and fats and oils (+1.4%). Over one year, the prices of these food products jumped by 5.6 per cent, while the overall inflation rate rose by 7 per cent. This is the highest rate of inflation since the 1980s, both in Luxembourg and among its European neighbours.

Several factors explain this very marked increase, which does not seem to want to slow down. In the background, there is the old law of capitalist economics: the rarer a product is, the more expensive it is. The first cause: the repercussions of the health crisis. "Covid-19 has caused what is known as a double bullwhip", explains Dr Benny Mantin, professor and director of the Luxembourg Centre for Logistics and Supply Chain Management (LCL) at the University of Luxembourg. The bullwhip effect, in logistics jargon, describes the ripple effect that a small change at the end of the supply chain ‒ at the consumer end ‒ has on the rest of the chain. A sudden increase in demand will ripple from the consumer to the producer and then from the producer to his subcontractors to the beginning of the supply chain, i.e. the raw materials used to make a product.

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