MNI INTERVIEW: Supply Price Pressure Seen Lingering For a Year

Global supply chain pressures are likely to keep inflation elevated for a year or more, though there's little evidence yet of a spiral of higher price demands, the head of Canada's Ivey PMI told MNI Friday.

"It's not just manufacturers having problems, it's constraints in the delivery system, so it's ships, the ports, the trucks, the trains and the associated Covid problems that we are slowly working our way out of, but also labor shortages," said Fraser Johnson, who compiles the Ivey index.

"It's going to be until mid to late next year before we start to work our way out of it," said Johnson, who teaches supply chain management and operations at Western University's Ivey business school in London, Ontario. Microprocessors are a longer run investment problem, bad weather in Texas hurt energy production and steel and aluminum prices are elevated, he said.

Companies fearing shortages are double and triple ordering products and raising wages, but remain cautious about seeking speculative price increases for next year that may leave them uncompetitive, Johnson said. "There is still caution about exactly how long this is going to go on," he said.

WATCH FOR BULLWHIP EFFECT

The shortages are often followed by a "bullwhip effect" that leads to a glut later, Johnson said.

"It's not like we're going to wake up one day where everything has been resolved," he said.

The Ivey PMI for October showed a record high measure of price gains on Friday, adding to evidence inflation is running hotter than central banks expected. The price index rose to 84.6 from 79.1 in September and 69.7 in August. The headline Ivey index fell to 59.3 from 70.4, and measures of deliveries and inventories also pointed to supply bottlenecks that have boosted global inflation.

U.S. consumer inflation is 5.4% and CIBC predicts a report Wednesday may show a quickening to 5.8%, which would be the fastest since 1990. Canada's inflation rate of 4.4% is the fastest since 2003 and the BOC says it will average 4.8% this quarter versus its 2% target.

Fed Chair Jerome Powell on Wednesday began tapering bond buys and said while there's evidence inflation is less transitory than first thought, considering a rate increase is premature because the economy is far from maximum employment.

"Purchases are starting to recover, firms are hiring more people, but supplier deliveries are bad," Johnson said. "Prices are going up."