![]() Neil Shearing, the chief economist at Capital Economics, said the UK and the US were most at risk from overheating into inflation, leading to central bank action. The Bank of England has flagged that rates could go up next year, and the US Federal Reserve has at last signalled the end of its massive pandemic stimulus plan that could push up the cost of borrowing in 2022. The Bank of England has signalled that interest rates could go up next year. ![]() While warnings increase about the threat of stagflation, more economists believe central banks might have to move more quickly to raise interest rates if inflation takes hold across the developed world. You put all these things together and its a perfect storm.” “Higher demand and restricted supply equals inflation: there’s no way out of it. PlayStations, laptops, phones, gym equipment – you name it people are trying to buy it,” he says. “Consumers are crazy to buy things because the world is awash with dollars from government stimulus, higher savings and pent-up demand. A lack of truck drivers in many parts of Europe, partly because of disputes over conditions and partly because of ongoing Covid restrictions, is causing delays.įlavio Romero Macau, a supply chain expert at Edith Cowan University in Western Australia, says that massive pent-up consumer demand in the wake of the pandemic has strained the world’s delicately balanced economic ecosystem. The problems don’t end when the goods arrive at a port, with labour shortages presenting a final problem in the increasingly tortuous journey of products to their final destination. On some busy routes, such as from China to Europe’s biggest port Rotterdam, the cost of shipping a container has risen sixfold in the past year. Drewry’s shipping index, which measures the cost of containers, is up 291% compared with a year ago. In Japan, an index of stocks of finished goods has dropped to levels not even seen in the wake of 2011 earthquake and tsunami disaster.īut even if they could get their hands on more sources of energy and materials, and factories could make more goods, it would still cost more to ship things. Opel is closing a plant until 2022 – the longest such stoppage so far. On Thursday, Volkswagen, Ford and Opel maker Stellantis announced fresh temporary closures in Germany because of the chip problem. Photograph: Reutersīritish car production dropped by 27% year on year in August as a lack of semiconductors and led to a big drop in the number of vehicles exported to Australia, the US and China. Volkswagen was among the carmakers forced to close plants amid a shortage of semiconductors. “Governments are having to rethink quickly because the three elements – supply side, transport, labour – are coming together to blow a stagflationary wind through the global economy.”Įnergy shortages are providing the starkest illustration of the problem, with increasing numbers of petrol stations in the UK running out of fuel, and cities in northern China having to ration power and force factories in the world’s number one manufacturing nation to shutter just when pre-Christmas demand is reaching a peak in the west.īoth countries have been caught out by not having enough reserves amid a scramble throughout the world for natural gas and for oil, which has almost doubled in price in 12 months to nearly $80 a barrel.Īlong with ongoing Covid-related restrictions in some large manufacturing countries such as Vietnam, and a well-documented shortage of components such as computer chips, factories are simply not producing enough. “The supply chain problems are much more persistent than most policymakers expected, although companies are less surprised,” he said. Mohamed El-Erian, and adviser to the insurance giant Allianz and president of Queens’ College, Cambridge, says this week’s surprise fall in factory output in China was a clear warning that the world economy could slump while prices were still rising quickly, a doomsday double whammy that almost sank the UK in the 1970s.
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