Global manufacturing heading for a hot (inflation) summer
|- A significant overheating is taking place in global manufacturing. A massive demand for goods have triggered shortages of production inputs, elevated freight rates, long delivery times and a sharp increase in commodity prices.
- We see few signs that the overheating will end soon. US stimulus is feeding strong demand for some time, savings are high and European goods consumption is now getting a new lift from the reopening of retail stores. On top of this manufacturing inventories are depleted and capacity-increasing investments will themselves require more resources in the short term. In additions central banks are not removing the punch bowl soon as employment is still far behind pre-covid levels.
- Eventually goods demand and commodity price inflation should ease when we start to spend more on services and the supply of goods and materials increases on the back of new investments. But until then we expect the overheating to continue into the summer and a pass-through to core consumer prices is increasingly likely.
This paper is the first in a series on the outlook for inflation. In future papers we will dive into how high inflation could get in coming quarters and whether the lift to inflation will become permanent
Overheating in goods sectors evident across commodities
Hardly a day passes without new stories of shortages across the production chains. While microchips have gotten most attention, the scarcity is showing up in a wide range of industrial metals, and different components for production. Many of them stuck in container ships waiting outside congested ports or just not being produced at fast enough to meet demand. Even lumber prices have more than tripled and food prices have leapt higher as well.
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