Interview
How Supply-Chain Disruptions Are Impacting Inflation
- Goods demand is expected to remain strong due to recent stimulus checks and an economic reopening that shifts spending from goods to services as vaccinations proceed globally.
- Supply chain disruptions are projected to alleviate pressure later in the year as trade routes normalize, though elevated shipping rates are anticipated to boost consumer prices slightly through the remainder of 2021 before becoming a drag in 2022.
- While supply chain issues are currently driving a nine basis point increase in year-over-year core consumer prices, the ultimate impact is expected to be modest because shipping costs comprise only 3% of total production costs and domestic shipping costs have risen only 1.6%.
- Most disruptions reflect transportation and container constraints rather than production limits, with shipping rates from East Asia increasing approximately 300% over the last year, prompting manufacturers to use costlier workarounds like air freight or alternative ports.
- Core goods inflation is forecast to remain firm through the end of 2021 and into 2022, driven primarily by higher upstream commodity and industrial good prices rather than direct supply chain bottlenecks.
- The risk of persistent economic overheating is considered low as fiscal stimulus effects fade and supply constraints ease, potentially reducing inflation risk premia associated with market pricing of a firmer inflation path.