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Supply Chain Graphic of the Week: Is Manufacturing Inflation Coming Back?

 

 

With Memories of Inflation almost Gone, Prices are Jumping for Manufacturing Inputs

 

Feb. 4,  2021

It's been so long since inflation has been an issue in the US, most people don't even remember what it is like.

 

That, unfortunately, may be changing.

 

Prices for manufactured goods a the componemt level are rising rapidly. Part of the reason for that, like everything else these days, is the effect of the virus pandemic. It is this simple: As Wolf Richter, of Wolfstreet.com recently noted, US consumers have cut back spending on services dramatically (restaurants, vacations, entertainment, etc.) in favor of buying goods, notably durable goods and home improvement.

 

And that rising demand combined with global supply chain gltches, including massive congestion and delays at container ports, are causing prices for manufacturing inputs to rise - rapidly.

 

As seen in the chart below, the ISM monthly Prices Paid Index started rising sharply in mid-2020, getting over the 50 mark that separates rising from falling input prices this past June, and coming in at a level of 82.1 in January - meaning the vast majority of companies are seeing higher prices for materials and components, and at an accelerated pace.

 

US ISM Prices Paid Index


 

So the seeds of inflation may already be here - it just hasn't shown up at the consumer level yet.

 

But it many be visible sooner rather than later. And that means supply chain buyers may have to start thinking about things like forward buys and other techniques that have been collecting dust in the procurement closet for years.


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