IHH Markit: Inflation Takes Centre Stage

Although slightly below May’s recent peak, the latest rise in global input prices was the second-steepest since the global supply shock caused by the Japanese earthquakes of 2011.

IHH Markit: Inflation Takes Centre Stage
COVID-19 cases will be worth scrutinising in the coming weeks for potential further disruption to economic conditions - Photo: https://unsplash.com/@pampouks

Consumer and producer price inflation data are updated for the US and China and will add further to the debate on whether the recent spike in price pressures is transitory.

The data follow news from worldwide PMI surveys that supply delays and higher shipping costs continue to drive up goods prices, which again fed through to higher service sector charges.

Suppliers’ delivery times – a key gauge of supply constraints and hence inflationary pressures – lengthened globally during July at a rate unchanged on that seen in June, which had in turn been the most severe ever recorded since PMI data were available in 1998.

Delays were most commonly blamed on the pandemic, with the recent rise of the Delta variant hitting production and shipping out of APAC in particular (see special report on page 4). Global factory production growth has slowed to the lowest since February

Producer input cost inflation has meanwhile accelerated as factories paid more for raw materials and components, with price increases often exacerbated by higher shipping rates.

Although slightly below May’s recent peak, the latest rise in global input prices was the second-steepest since the global supply shock caused by the Japanese earthquakes of 2011.

Attention turns to the July inflation updates across the world’s largest economies, US and China, for an assessment of the price pressures at the start of Q3. July PMI showed the global economy sustaining strong growth, but supply constraints continued to grow at an unprecedented rate, dampening growth and pushing input cost inflation higher.

Besides supply constraints, July PMI data also alluded to the detrimental effects of the Delta variant spread. As global COVID-19 cases crossed the 200 million mark, the weakening economic data are a reminder that the pandemic remains the number one risk to economies in terms of both slower growth and inflation.

Mainland China, which had initially been first-in/first-out from COVID-19, reported the highest number of local cases since January and saw new movement restrictions in place, speaking to the threat of the latest wave. The trend with global COVID-19 cases will be worth scrutinising in the coming weeks for potential further disruption to economic conditions.

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