Analysis: From chips to ships, shortages keep inflation hanging on


  • Analysts still view price pressures as temporary
  • But by monitoring supply, worker shortages closely
  • US more threatened by wage-induced inflation

LONDON, Sept. 30 (Reuters) – Soaring gas prices, staff shortages, shortage of ships – global price pressures could intensify faster than expected, challenging the idea that inflation will be transitory.

Central bankers, as outright inflation eases, begin to admit that it may stay higher for longer, as a series of problems push up the prices of goods and services and raise expectations of future inflation.

Their findings will ultimately determine how quickly policymakers unwind the trillions of dollars in monetary stimulus triggered to ease the COVID-19 crisis.

“Will central bankers be more focused on growth and lag a little behind? Or will they be more concerned about inflation and quickly withdraw the punch bowl?” Said Charles Diebel, head of fixed income securities at the asset manager Mediolanum International Funds. .

Here are five key elements of the inflation debate:

Reuters Charts

1 / CARBONIFICATION

Gas prices in Europe and the United States have climbed more than 350% and more than 120% respectively this year. Oil is up about 50% and Goldman Sachs expects Brent crude to hit $ 90 a barrel by the end of 2021, down from around $ 80 now.

Gas and electricity represent 4.8% of the harmonized inflation basket (HICP) for the euro zone used by the European Central Bank. Rabobank believes that the price spike is a separate ‘shock’ that could add 0.15 percentage point (ppt) to its inflation forecast of 2.2% in the euro area for 2021 and an additional 0.25 ppt to the 1.8% projection of 2022.

Many economists believe that higher gas prices will continue, due to the slowdown in US production, rising costs of carbon permits for polluters and limiting the use of more polluting fuels. .

In China, where factory inflation hit 9.5% in August, power cuts reduced output of goods ranging from cement to aluminum.

These outages pose a risk to end users such as those in automotive supply chains, Morgan Stanley said, noting “cost inflation and tight upstream supply that could affect production and profits as well. downstream”.

Gas prices

2 / CHIPFLATION

Semiconductors, or chips as they are called, are tiny but have a disproportionate impact on factories worldwide. At General Motors (GM.N) alone, chip shortages reduced vehicle deliveries by 200,000 in the third quarter, while lower production pushed up used car prices.

Chip prices have risen, and Taiwan’s semiconductor giant TSMC (2330.TW) is planning further hikes of up to 20%. This will spill over into everything from electronics to cars and phones to washing machines. But chipmakers themselves face higher input costs, from raw materials to electricity.

“It seems likely that these semiconductor shortages will persist over the next year,” said Jack Allen-Reynolds, senior European economist at Capital Economics.

Or beyond. The CEO of Intel (INTC.O) predicts that chips will account for a fifth of the cost of a car by 2030, up from 4% in 2019, as vehicles become autonomous or electric.

Reuters Charts

3 / FOOD

Global food prices rose 30% year-on-year in August, according to an index compiled by the Food and Agriculture Organization of the United Nations, a sign of intensifying price pressures.

While rising agricultural commodity prices are behind the jump, analysts at JPMorgan also attribute food price inflation to pressures from the pandemic such as logistical disruptions and transportation costs.

In emerging markets, where food is a large part of inflation baskets, there is more pressure to tighten monetary policy. This is less of a problem for developed countries, but price hikes seem inevitable for products like soft drinks and snacks.

Reuters Charts

4 / GREENFLATION

Strict rules to guide the transition to a greener future are accused of fanning ‘greenflation’, for example by closing polluting factories, vehicles, ships and mines, in turn reducing the supply of goods and essential services.

The prices of European carbon emission allowances have doubled this year to reach 65 euros per tonne. A price of 100 euros would raise retail electricity prices in Europe by 12%, adding 35 basis points to euro area headline inflation, Morgan Stanley estimated in June.

There are other examples. Falling ship orders due to upcoming fuel rule changes may be a tailwind for shipping rates which have already risen 280% this year (.BADI).

NatWest attributes the upturn in raw materials at least in part to the shift to greener technologies increasing extraction and production costs.

All of this may not have fully penetrated the inflation calculations. For example, markets see eurozone inflation reach only 2% after a decade, Danske Bank sees “upside risks to inflation expectations … once the implementation of the green transition will grow “.

Carbon price

5 / WAGE INFLATION

As prices rise, consumers’ expectations of future inflation also rise, thus requiring wage increases.

The picture of wage growth is mixed. Average hourly earnings in the United States jumped 0.6% in August and five-year inflation expectations in the United States are hovering around 3%, according to surveys.

In some UK sectors, profits have increased by as much as 30% this year. Eurozone wage costs fell in the second quarter, but inflation as well as inflation expectations are on the rise.

“Maybe the markets are a little extreme in their prices, but I don’t recommend investors tone down this move,” said Jorge Garayo, senior rate strategist at Societe Generale.

“When we start next year, that will be the big test.”

American wages and inflation
Inflation expectations

Reporting by Dhara Ranasinghe and Sujata Rao; Additional reporting by Stefano Rebaudo; Editing by Kirsten Donovan

Our Standards: Thomson Reuters Trust Principles.


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