Severe Supply Bottlenecks Add to Inflation Pressures

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The Epoch Times

WASHINGTON—Worldwide supply shortages have led to price increases for raw materials in recent months, boosting production costs for many businesses. Due to the “depth and breadth of supply chain disruptions,” economists expect consumer prices to continue to rise for some time.

The supply disruptions caused by the global pandemic and related economic lockdowns stand out for their severity and for their global spread, according to a recent report by the Institute of International Finance (IIF). Supplier delivery delays in the United States and Germany are as severe as Japan experienced in 2011 in the wake of the Fukushima nuclear disaster, the IIF economists said in the report.

The disaster in Japan shook up the supply chains of many global brands, including Apple and General Motors, that relied on Japanese suppliers for many parts.

Similarly, the widespread commodity shortages happening today creep into various parts of the supply chain, raising production costs for many companies such as Procter & Gamble, Kimberly-Clark, and Coca-Cola.

“Firms in many countries [are] moving to mark up their output over input prices to manage demand as economies reopen,” the IIF report said.

Inflation will likely rise further as these higher costs get passed along to consumers, the report said, adding that the Federal Reserve may have to raise its inflation forecasts in its coming meetings “given the depth and breadth of supply chain disruptions.”

The Fed officials have already communicated that they expect upward pressure on prices this year with the reopening of the economy.

In March, the central bank raised its inflation projection to 2.4 percent for 2021, up from the 1.8 percent projected earlier. Fed officials said price increases are “transitory,” with the expectation that inflation will eventually return to the central bank’s 2 percent target.


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