MNI INTERVIEW: Factory Prices May Rise Fastest Since 1950s-ISM

U.S. manufacturing price gains may surge to the fastest pace since the 1950s in the next few months on widespread shortages of parts, materials, and workers, Institute for Supply Management chair Tim Fiore told MNI Monday.

Previous ISM estimates that foresaw price growth of 2.5% over the first half of 2021 are likely to double to 5%, according to revised preliminary estimates the group hasn't published yet, Fiore said in a phone interview. Estimates for the second half of the year are also being increased, and even with some moderation late this year, the 2021 price gain will likely be around 3%, he said.

"Officials are saying that this is transitory and as demand gets back to normal prices will fall back down," he said. "It could very well be, but in the meantime there's no indication that they will. There's no end in sight that anyone can really see here."

That price outlook diverges from Federal Reserve officials who see long-term inflation pressures as modest and argue it's premature to open a debate about "substantial further progress" that could bring a slowing of bond purchases because price pressure in the near-term are transitory.

SLOWEST DELIVERIES SINCE 1993

The ISM's April price index was 89.6, the highest since July 2008 when it was 90.4. The latest report showed 80.1% of respondents paid higher prices, up from 71.6% in March.

The overall PMI's decline to 60.7 from 64.7 was not because demand is slipping, and instead "inventory decline is the single biggest factor holding things back," he said.

Supply bottlenecks and labor shortages are leading to growing backlogs and slower deliveries. Fiore said plastics and semiconductors in particular may restrain growth for months. The measure of order backlogs was the highest in data for that question back to 1993.

The lack of truck drivers is having a ripple effect on deliveries, and many other employers are having trouble finding skilled workers and coping with continued high absenteeism during the pandemic, he said.

TRUCK DRIVERS NEEDED

The survey's employment gauge fell to 55.1 after shooting up to 59.6 in March, which was the highest since February 2018. "That's a reflection that they have difficulty hiring, not that they wouldn't hire," he said.

While some firms appear reluctant to raise wages to coax back some workers who can ride out the pandemic with richer jobless benefits being offered until September, Fiore suggested firms should be enticing workers right now because they will remain in short supply.

"You really shouldn't delay because this is not going away for the next year," he said of worker shortages. "Do you want to lose market share to a competitor?"