As we wrote last year, the global supply chain crunch will continue to impact pricing, lead times and deliverables well into 2022 and beyond. Prices paid to U.S. producers posted a record annual increase of almost 10% in November, a surge that will sustain a pipeline of inflationary pressures well into 2022.
The producer price index for final demand increased 9.6% from a year earlier and 0.8% from the prior month, Labor Department data showed in December. Both advances topped economists’ forecasts.
Materials costs have risen rapidly this year amid transportation bottlenecks, robust demand, and labor constraints. Many businesses have successfully passed those added costs on to customers through higher prices, and the latest report suggests additional consumer price increases in the coming months.
Manufacturing companies have all had to adjust to the realities brought on by the global supply crunch, and here at Cass Precision Machining we are collaborating with our partners as much as possible, doing the best we can to alleviate costs and concerns for our customers. This partner collaboration includes daily logistics, tracking materials via spreadsheets, and shuffling and prioritizing schedules etc. and communicating as often as possible with our customers.
According to the Wall Street Journal, the higher-than-expected producer-price numbers suggest that consumer inflation, which hit a nearly four-decade high of 6.8% in November, will stay elevated into 2022 as price pressures persist. The index, which generally reflects supply conditions in the economy, rose 0.8% from October, an acceleration from the 0.6% gain in each of the previous three months. Higher prices for energy, wholesale food, and transportation and warehousing contributed to the pickup in inflation.
“This is a testament to the fact that inflation continues to broaden out,” said Stephen Stanley, chief economist at Amherst Pierpont, in the WSJ article.
Persistently high prices in large part reflected clogged supply chains, as manufacturers scrambled to keep up with unusually strong consumer demand. The rise in prices of goods continued to outpace that for services, as consumer spending on goods remains elevated, while that on services is up just slightly from pre-pandemic levels.
Prices for good, excluding food and energy, climbed 0.8% in November from October, faster than the 0.6% increase the previous month. The service index advanced 0.7% on the month, up from 0.2% in October, driven in part by a pickup in hotel room rates and airfares.
According to Reuters, trillions of dollars in COVID-19 pandemic relief from governments across the globe fueled demand for goods, leaving supply chains overstretched. The normalization of economic activity has also juiced demand for services, with the delivery of some being hampered by worker shortages, driving up prices.
The easing of inflation for goods used to make other products, though still high, signaled that producer-price inflation is nearing its peak, said Gus Faucher, chief economist at PNC, in the Wall Street Journal. “PPI inflation will slow in 2022 as prices for energy and other raw materials decline thanks to greater production, weaker demand, and a gradual waning in supply chain problems,” said Faucher. “But PPI inflation will remain above its long-run levels due to continued strong demand for some goods and services and higher wages.”
At Cass Precision Machining we continue to partner closely with our customers to manage the challenges around material availability, material price, delivery needs and shipping. We are committed to developing creative solutions to optimize customer success.