Lingering inflation from global supply chain issues

04 October 2021

The economic recovery and inflation are increasingly being shaped by supply-chain issues related to labour shortages and production bottlenecks. For example, a scarcity of US construction workers has hindered home building, while semiconductor chip production has recently depressed auto sales a little. In the EU, a record 40% share of manufacturers surveyed in August by the European Commission reported that a lack of equipment and materials were factors limiting production1.

Meanwhile, transport costs have surged, with container shipping fees from China to Europe up sevenfold from last year2.

While growth may ebb and flow as supply chain logjams are resolved over time, shortages could nonetheless have a lingering impact on inflation. Critically, inflation is now showing signs of broadening from a shortage of chips used in car production to other sectors in the economy. For instance, furniture retailer IKEA is experiencing a shortage of up to about 10% of its product range in the UK, due to transport issues and the availability of raw materials3. KFC, a fast food chain has had to offer a limited menu as the poultry industry is suffering from a tight labour supply. Moreover, labour shortages are forcing employers to raise wage rates: Amazon increased its average starting wage in the US by around 6% in May in its bid to hire 125,000 transportation and warehouse workers4. In the UK, following a run at fuel pumps around the country, lorry drivers can command higher salaries.

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