The debate rages on
Policymakers may continue to allude to inflation as being ‘transitory’ but as mentioned countless times by now, what exactly is their definition of ‘transitory’ is up for debate.
The fact of the matter is, as supply chain disruptions continue to persist globally, there are still few signs (if any) that inflation pressures are going to subside any time soon.
In particular, the hit to the semiconductor sector has global reverberations to multiple industries and there aren’t any convincing signs that things are getting better at the moment.
Going back to the discussion, the latest global PMI reports certainly adds to the argument that higher price pressures will persist for longer as supply chain disruptions are expected to carry on into Q4 and perhaps into next year as well.
Is that really ‘transitory’? Well, that’s still up for policymakers to decide.
From Markit’s latest global electronics PMI report:
Supply chain issues remain at large, however, and bottlenecks
are being exacerbated by strong input demand. While cost
pressures continue to mount, profit margins aren’t being
suppressed as firms are merely passing these higher costs to
their clients. Whilst this trend is unlikely to be sustainable, until
sales become more sensitive to prices, inflation will continue to
And this, from JP Morgan’s latest global composite PMI report:
Price pressures remained intense during July, with rates
of both input cost and output charge inflation among the
steepest in the survey history. Part of the increase in input
prices reflected the ongoing disruption across global supply
chains. Increased costs were passed on to clients in the form
of higher charges. Rates of increase in both price measures
were steeper at manufacturers than service providers.
Bolding what I feel is the relevant piece of information in the inflation debate.
While strong demand conditions may help to absorb some of the pressure on businesses, it is pretty much akin to rising water trapped in a dam.
Eventually, something’s gotta give and that means either global supply chains manage to heal itself over time (that needs a synchronised global recovery from the virus) or central banks start to give in to the pressure that inflation isn’t that ‘transitory’ after all.
Just some food for thought. A couple more posts on this from before: