Why supply chain bottlenecks, price pressures may subside by the end of the year

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Economists at Guggenheim Investments, like the Federal Reserve, think that high lumber prices and a shortage of essential parts, materials, and labor probably won’t last long enough to spark runaway inflation. “Supply chain disruptions are widespread in everything from semiconductors to wood, contributing to fears that higher inflation is coming,” economists Brian Smedley and Matt Bush wrote in a note Monday.

“These disruptions are exacerbated by increased demand as the economy reopens and fiscal policy provides a strong tailwind for consumption,” they said. But economists also expect skyrocketing prices for some key materials, including the jump in LBK21 lumber prices, + 4.97% LB00, + 4.97% to more than $ 1,200 per 1000 board feet from less than $ 200 a few months ago, to ease once the capacity starts. to collect at sawmills, factories and manufacturers later this year. “While these supply problems can be challenging in the short term, investors should realize that these kinds of price pressures, typical of an economic rebound, are more one-off adjustments than the kind of sustained inflation that would trigger the Fed. Federal (Fed) to react ”, they said. See: Lumber and steel markets look to Biden‘s infrastructure plan for their next big push.That echoes Federal Reserve Chairman Jerome Powell, who last week dismissed signs of inflationary pressures in some parts of the economy largely as a result of “transitory factors,” such as supply bottlenecks and an increase in pent-up spending. To underscore their point, Guggenhiem’s ​​economists examined how short-lived the effects of supply chain disruptions have been since the 1980s.

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Supply chain bottlenecks haven’t lasted in the past Guggenheim Investments

Referring to the chart above, they noted that “higher prices from supply bottlenecks in manufacturing are often short-lived,” the team wrote, adding that inflationary pressures will likely also be tempered by high prices. and an improvement in the COVID situation at the end of the year. All of that likely means the Fed could struggle to exceed its 2% inflation target as part of its recovery strategy, without “sustained inflationary pressure” coming from the large services sector, “the team wrote. Read: Prices of copper post highest end in more than 9 years US stocks, including the Dow Jones Industrial Average DJIA, + 0.90% and the S&P 500 SPX Index, + 0.53% traded higher on Monday, despite an indicator of manufacturing activity that rose, but came in short, analyst expectations, amid supply chain bottlenecks and rising prices.