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Supply chain adjustment is helping alleviate inflation
“Supply chain adjustments are helping alleviate the global inflation crisis; we expect prices to continue to fall,” says the CEO of supply chain specialists OCI.
- US inflation fell sharply in December, with the month-on-month headline rate negative and annualised core inflation rate of only just over three per cent.
- UK inflation falls, too but remains close to a 40-year high. However, on a month-on-month basis, it is at 0.4 per cent, compared with two per cent two months earlier.
Oliver Chapman, CEO of supply chain specialists OCI, the UK’s fastest growing company in 2022, gives his thoughts on how supply chain adjustments are helping to push downwards on inflation in the US, UK and euro area.”
“Adjustments in the supply chain continue to exert downward pressure on inflation — as we have been predicting since the spring of 2022.
“The very indicators pointing to inflation this time last year are now, if anything, pointing to deflation.
The price of lumber has fallen by roughly two-thirds over the last year, and now the price isn’t far off the five-year average before the Ukrainian crisis. Remember, very early in the post-Covid recovery; people pointed to surging lumber costs as a sign of inflation ahead — those rises have now almost entirely reversed.
“Brent crude has fallen by roughly a third since last summer, DRAM continues to plummet — and is now hovering around a five-year low. As for shipping costs, the Baltic Dry Index is around a third of the level from a year ago, and if the trend seen in recent months continues, it will soon be down to the exceptionally low levels seen during the Covid crisis. In the US, used car prices fell sharply in the second half of last year, and although they remain quite high compared to two years ago, the trend is extremely encouraging.
“Last year, there was a slight concern that falling commodity prices were partly a function of the high dollar, but in recent months, both the pound and euro have risen sharply against the dollar.
“The supply chain has and continues to adjust to the shocks caused by the pandemic and war in Ukraine.
“Also, luck often moves in circles, and the UK, in particular, has benefited from windy conditions helping alleviate the energy crisis.
“The only major concern is that wage increases might become embedded into the system. Inflation expectations matter, and if employers and employees anticipate inflation — despite falling commodity prices — their expectations might become self-fulfilling.
“But it is clear that the worse of the inflation crisis is behind us. We expect it to continue to fall in the US, moving close to the target rate of two per debt within a few months. The UK and euro area will follow suit, but it might take longer for the price falls to gather momentum, and in the UK especially, the decline in inflation might be quite slow.”
Links
Lumber: https://www.nasdaq.com/market-activity/commodities/lbs Brent Crude https://tradingeconomics.com/commodity/brent-crude-oil DRAM https://en.macromicro.me/charts/36745/dram-spot-price Baltic Dry Index https://tradingeconomics.com/commodity/baltic US used car prices. https://fred.stlouisfed.org/series/CUSR0000SETA02
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