An easing of global supply chain pressures opens the door to declining inflation in the months ahead, says Fitch Ratings.
In a new report, the rating agency said an easing of disruptions to parts of global supply chains — shipping port congestion opening up, order backlogs declining and delivery times shortening — is raising the prospect of lower goods inflation.
For instance, congestion at U.S. ports has dropped by 80% since November 2021 while cargo transportation times are down to 90 days from over 120 days in April, Fitch said.
Additionally, the latest U.S. manufacturing producers index, “showed that order backlogs are being cleared more quickly and supplier delivery times are falling fast,” Fitch reported.
The easing of congestion is being helped by slowing consumer demand as household purchasing power is being reduced by high inflation and rising interest rates, it noted — adding that consumer surveys indicate that future buying intentions are declining too.
Semiconductor shortages are also starting to ease, Fitch said, with inventories growing at their fastest rate since 2016, and delivery times, “[appear] to have peaked.”
Fitch said these trends all point to declining inflationary pressures.
“Just as core goods inflation rose sharply last year when sales outpaced inventories, rising inventories-sales ratios today could be consistent with falling goods [prices] in some sectors,” it said.
While supply chain risks remain — among them China’s zero Covid-19 policy, and shipping and energy sector challenges in Europe — the report concluded that “recent improvements to global supply chain pressures are encouraging.”