The surge in global price pressures is not quite abating just yet
Central banks are continuing to argue that inflation is 'transitory' and that the latest surge in prices is one that will prove to be temporary.
While the fundamental basis of their argument isn't wrong, it really boils down to what they really think 'transitory' actually means. A couple of months? A couple of quarters? A year perhaps? That's the tough thing to really grasp at the moment.
I would argue that central banks are just stringing things along for as much as they can get away with it and for now, they are succeeding in that sense. As mentioned before, it's not exactly what 'transitory' really means but how policymakers view it to be.
For now, the argument looks set to continue throughout Q3 and onwards to Q4. As such, it will continue to test central banks' patience on this issue.
A neat chart by Westpac highlights that the cost of shipping a 40ft box from Hong Kong to Los Angeles and back to Hong Kong (roundtrip) is indicated at nearly $12,000 at the start of August. That's roughly five times higher than the average rate for early August between the period of 2012 to 2019, indicated at around $2,300.
That's brutal and what more, these costs are likely to slowly be passed on to consumers the longer that such price issues persist. And given capacity constraints and supply chain disruptions still not showing signs of abating, it feels inevitable.
JP Morgan's global manufacturing PMI report also highlights that input costs are still at a near-record in July and that poses risks for the overall sector performance:
Supply chain issues also drove up input costs in July. Purchase price inflation ticked higher and was among the steepest over the past 13 years. Part of the increase was passed on to clients, leading to a further near-record increase in manufacturers' selling prices.
That could further stymie growth conditions in the months ahead and threaten the strength of the recovery observed in most major economies in Q2 2021.
