“Not only have the last two months seen supply shortages develop at a pace not previously seen in the survey’s history, but prices have also risen due to the imbalance of supply and demand.”
By Wolf Richter for WOLF STREET.
The signs of inflation building up in the economy are now everywhere. IHS Markit, in its release of the Flash PMI with data from companies in the services and manufacturing sectors, added to that pile of evidence.
For companies, inflation happens on two sides: what they are having to pay their suppliers, and what they can get away with charging their own customers, which may be consumers, governments, or other companies.
And increasingly, companies are able to pass higher input prices on to their customers – meaning, their customers are not totally balking at paying higher prices and they’re not switching to other sources to dodge those price increases. That’s a mindset that nurtures inflation.
This PMI data is based on what executives said about their own companies (names are not disclosed) and the conditions they face in the current month. No quantitative measures or dollar amounts are involved.
And this is what they said about their two aspects of inflation, according to Markit:
On surging input prices:
- “Inflationary pressures intensified as supplier delays and shortages pushed input prices higher.”
- “The rate of input cost inflation [in January] was the fastest on record (since data collection began in October 2009), as soaring transportation and PPE costs were also noted.”
- Amid stronger expansions in output and new orders, manufacturers experienced “significant supply chain delays, raw material shortages, and evidence of stockpiling at goods producers” that “pushed input prices up.”
Passing on higher input prices via higher selling prices:
- Manufactures raised selling prices “at the sharpest pace since July 2008 in an effort to partially pass on higher cost burdens to clients.”
- “A number of firms were able to partially pass-on greater cost burdens … as the pace of charge inflation quickened to a steep rate.”
- “The impact was less marked in the service sector as firms sought to boost sales.”
“Capacity constraints are biting amid the growth spurt,” the report summarized. “Not only have the last two months seen supply shortages develop at a pace not previously seen in the survey’s history, but prices have also risen due to the imbalance of supply and demand.”
“Input cost inflation consequently also hit a survey high and exerted further upward pressure on average selling prices for goods and services,” the report said.
These pricing pressures woke up in June, after the demand collapse in the prior months. Markit reported at the time that “inflationary pressure returned as both input prices and output charges rose for the first time since February, with both increasing at solid rates.” And “firms partially passed on higher supplier prices to…
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