SOME HEALING: We are seeing signs of supply chains readjusting to the huge demand and dislocations seen this year. Our supply chain ‘pain’ index is down 20% from early October highs with lower computer chip, freight, and energy prices. This drop likely broadens next year as supply chains adjust further, helping ease inflation and corporate profit margin worries. This should help the hard-hit retail (@ShoppingCart) and auto (@ChinaCar) sectors. But also trim the upside to shippers like Maersk (MAERSKB.COM), Zim (ZIM), and other dislocation ‘winners’.
GOOD NEWS: Prices for low-end DRAM computer chips, bulk and container freight shipping, and European natural gas are down from peaks. These have been four of the most impacted areas of global supply chains, and these early signs of easing bottlenecks are welcome. Our simple weighted daily supply chain ‘pain’ index peaked six weeks ago, after surging 200% this year.
LESS GOOD: But the ‘pain’ index remains very high and supply chains are still fraught. Also bigger and ‘stickier’ parts of inflation have started to deteriorate. The ‘shelter’ component of US inflation is picking up (+3.5% last month) and is 30% of the index. Whilst average hourly wages, which impact across the economy, rose 4.9% last month. Easing supply chains will reduce inflation rates and concerns into next year, but the genie may already be out of the bottle.
TODAY: Fed’s favoured PCE inflation measure kept near-term pressure on, rising 0.6% vs last month and 5% vs last year. However, long term University of Michigan inflation expectations saw some relief, stable at 3%, whilst 5-year market expectations are also stabilising around 2.2%.
All data, figures & charts are valid as of 24/11/2021