Freight, furniture feeds import inflation as Fed flags supply chain constrain

The U.S. Federal Reserve has noted the risks from supply chain constraints for economic activity and prices going forward. The end-January Federal Open Market Committee minutes, published Feb. 17, indicated that "there could be increases in the prices of some goods whose production has been subject to supply chain constraints, or soon could be." It also stated that, as an "upside risk to inflation, several participants noted the potential for pandemic-related supply constraints to affect price inflation somewhat more than anticipated."

A wide range of companies have reported increased logistics and raw material costs as having already hit fourth-quarter 2020 earnings, with the potential for more of the same in the coming quarter. Part of the impact will be temporary — as the Fed also noted — although there are reasons, such as the need for investment in a new generation of container ships, that may leave shipping rates higher for longer.

While domestic price pressure may be under control, the pressure from price inflation in international trade is picking up. Panjiva's analysis of official data shows import prices increased by 0.9% year over year in January, up from deflation of 0.3% a month earlier, including a 2.6% surge in prices excluding food and fuels. Export prices have also started to inflate with prices, excluding food and fuels, up by 3.3%.

The inflationary pickup has been particularly noticeable in base materials. Imports of chemicals and plastics reached 3.3% and 4.7%, respectively, while wood/paper and base metals climbed 9.7% and 16.8%, respectively. The latter represented a doubling of the rate from a month earlier and comes as the Biden administration may be looking to consider the section 232 duties charged on imports of steel and aluminum. 

The electronic supplies sector has seen growth of 0.5% in electronic circuit prices, although that has been constant for the past four months. The main challenges faced are in the availability of specific chips — for example, for autos — rather than generic modules. 

The automotive sector itself has seen little change in price inflation at 0.3%. Meanwhile, imports of household goods are becoming more expensive. This is partly reflected in the surge in demand for imports in the wake of stay-at-home spending, with prices that rose 2.8% in January after increasing 2.5% year over year in December 2020.

Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.