Inflation 'is inseparably linked to the supply chain,' former Home Depot CEO says

·Reporter
·3 min read

Inflation appears to be spilling into all parts of the economy, with one primary reason being ongoing supply chain constraints.

"Inflation is inseparably linked to the supply chain," former Home Depot CEO Bob Nardelli told Yahoo Finance Live (video above). "I look at a global view of the container ships around the world and we have well over 550 ships right now floating on the water waiting to get unloaded. We have an equal number of tankers floating on the water ready to get unloaded."

The pandemic created the perfect storm to disrupt supply chains: Port backups, container shortages, and other supply chain nightmares meant that retailers and brands were largely put at the mercy of forces outside their control.

"Supply chain has caught every company off guard here, and I just don't see it getting better," Nardelli said. "I think we're in for a long, rough patch, certainly through the balance of this year until we get stability back in the supply chain."

Lumber for sale at The Home Depot in Annapolis, Maryland, on May 16, 2022, as Americans brace for summer sticker shock as inflation continues to grow. (Photo by Jim WATSON / AFP) (Photo by JIM WATSON/AFP via Getty Images)
Lumber for sale at The Home Depot in Annapolis, Maryland, on May 16, 2022, as Americans brace for summer sticker shock as inflation continues to grow. (Photo by JIM WATSON/AFP via Getty Images)

'Unbelievable' challenges in China

China holds the cards for the global supply chain as a severe COVID-19 lockdown in Shanghai lasting more than two months may be coming to a gradual end.

A fifth of the world’s containerships are stuck in congested ports, according to Windward data, and a quarter of those "stuck ships" are at Chinese ports. Since February, the number of container vessels waiting outside of Chinese ports has risen by 195%.

Additionally, shipping one container from China to the West Coast now costs roughly twice as much as it did a year earlier, research firm Resilinc found, with 344 ships stuck at the Shanghai port — a 34% increase since March.

An automated guided vehicle (AGV) transports a container at the Yangshan Deep Water Port amid the coronavirus disease (COVID-19) outbreak in Shanghai, China April 27, 2022. Picture taken April 27, 2022. cnsphoto via REUTERS
An automated guided vehicle (AGV) transports a container at the Yangshan Deep Water Port amid the coronavirus disease (COVID-19) outbreak in Shanghai, China April 27, 2022. cnsphoto via REUTERS

"If you think about the city they shut down in China, you got 26 million people, fourth-largest port in the world, and we're not moving product in to get manufactured, and we're not moving product out on the supply chain," Nardelli said. "We've got a real challenge here globally in our economy or business. And I've never seen the challenges for a CEO greater than they are today. The broad range of constituents that they have to try and satisfy is unbelievable. Unbelievable to date."

Meanwhile, Home Depot (HD) seems to be weathering these challenges surprisingly well. The home improvement retail giant reported better-than-expected earnings. Sales rose nearly 4% from a year ago to $38.9 billion and were the highest-ever for the first quarter in the company's history, current CEO Ted Decker noted on the earnings call.

Home Depot said Tuesday it expects revenue to rise 3% this year after a strong start. It's the latest sign consumers are absorbing higher prices after retail sales jumped 0.9% last month and were revised higher for March.

The average spending per transaction also grew faster than Home Depot expected due to inflation across several product categories, including core commodities like lumber and building materials.

"We're dealing with inflation every day," Nardelli stressed. "It's not a quarterly thing. It's not a monthly thing. It's every day."

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv

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