Key Inflation Indicator Hits Highest Point in 30 Years, Says Federal Reserve
Today’s supply chain disruptions are not only affecting manufacturing industries, but also everyday consumers trying to purchase anything from chicken to golf clubs. Global climate trends, natural disasters, geopolitical tensions, shipping freight delays, and other such issues are combining with the ongoing COVID-19 pandemic to create a perfect storm of challenges that makes 2021 one of the most difficult years supply chains have faced in recent memory. There is, however, one challenge that may linger far longer than the others, and it is one that supply chains should probably be most worried about: inflation.
This month, it was revealed that the Federal Reserve’s preferred inflation measure, the core personal consumption expenditures price index (Core PCE), rose to 3.6% from this point last year. Although this growth was in line with economists’ expectation, this represents the largest growth on an annual basis in 30 years. Including food and energy which are excluded from Core PCE, the index rose 4.2%.
The official stance of the Federal Reserve is that many of these readings are the result of temporary pressures caused, directly and indirectly, by the COVID-19 pandemic. However, it has also made statements that concede the situation may last longer than their original projections claimed.
The White House has expressed similar sentiments. Since assuming office in January, it has now more than doubled its forecast for annual inflation, The Wall Street Journal reports. According to the Office of Management and Budget, consumer prices are expected to rise 4.8% in the fourth quarter from a year earlier, up sharply from the 2% rise that was forecast in May. Its projections currently see those price pressures abating somewhat next year, but with the consumer-price index still rising 2.5% in the fourth quarter of 2022, more than the 2.1% they expected in May, and reaching 2.3% in 2023.
Manufacturers would be wise to take heed of these realities. Not only will raw materials and inventory shipments be constrained for the foreseeable future, prices for them will also continue to rise. Last time buy purchases of critical inventory to ensure production for at least the durations of these disruptions should be highly prioritized.