Chart Of The Week   January 04 2022

Are Global Price Pressures Easing?

Global price pressures easing

The global manufacturing PMI remained at 54.2 in December, unchanged from its October and November figures. Notably, the new orders, output, and employment components all registered stronger readings. Meanwhile, the report suggests that while supply chain constraints remain intense, there is some preliminary evidence that they are peaking.

Although the global PMI’s input costs and output prices series remain elevated at 69.7 and 59.8 respectively in December, they both eased to 8-month lows. Similarly, the US ISM’s prices series softened to a 13-month low of 68.2 in December from 82.4 and delivery times are slowing at a slower pace relative to November. Moreover, the input price series in China’s NBS manufacturing PMI dropped to contractionary territory of 48.1 (from 72.1 just two months ago) while the output prices index fell deeper below 50 to 45.5. These trends are also consistent with findings from the New York Fed’s newly released global supply chain pressure index which suggests that pressures may be near an apex.

The omicron variant is a temporary source of risk to any improvement in global supply constraints (see Country Focus). Restrictions, worker absenteeism amid surging infection rates, and China’s zero tolerance policy all point to the possibility that supply-side strains may once again intensify. Our US Bond strategists’ base case remains that the Fed’s first rate hike will occur in June. However, if inflationary pressures prove more persistent and push up inflation expectations, then the liftoff date could be brought forward to as early as March.