Bottlenecks in global supply chains fuel inflation

By Bahattin Gonultas and Dilara Zengin

WASHINGTON (AA) - Bottlenecks in global supply chains from chips to food fuel inflation in many countries.

Global price pressures such as ongoing logistical difficulties, labor shortages and high energy prices challenge the view that inflation will be temporary.

Delta variant of COVID-19 and supply chain bottlenecks have been negatively affecting the global economy.

In many places, while ships are waiting on the shores without unloading their cargo, there are blockages in road and rail transport.

The break in the supply chain has been negatively affecting the entire economic functioning, from energy supply to freight prices.

While logistics problems increase transportation costs, it is also difficult to find staff to work in the sector due to the pandemic.

Workers, part of global supply chains, warn that the global transport system could collapse if necessary precautions are not taken.

Finally, in the letter sent by the global land, air and maritime transport organizations to the UN General Assembly, it is pointed out that there is a shortage of workers in all transportation sectors.

The supply bottlenecks, seen as temporary at the start of the COVID-19 outbreak, are currently expected to last until 2022.

- Inflation

Both Supply bottlenecks in global trade and high commodity prices are pushing producer and consumer prices upwards.

Problems in the supply of many products, from chips to food, fuel inflation even in developed countries such as the US and Germany.

While some one-off measures, such as VAT reductions, which were introduced at the beginning of next year, are expected to disappear, it is expected that the recent fluctuations in energy prices, especially natural gas, the ongoing supply chain problems and the price increases due to increasing demand with the gradual normalization of the economy are expected to continue.

In this context, it is predicted that inflation in developed countries will remain above 2% for most of 2022.

While annual inflation in the US was 5.3% in August, the figure for the EU saw its highest level in a decade with %3.

- Central banks say rising inflation temporary

While high inflation in developed countries has been a cause for concern, economists present two different views.

Some economists argue the driving factors behind inflation are temporary and base effects will disappear in the first half of 2022. Others warned the risk of accelerating inflation is wide, as there will be a suitable ground after the pandemic. The view that the laxity in the labor market will curb inflation has been gaining momentum recently.

Central bank officials, on the other hand, defend the view that inflation is temporary while increasing price pressures challenge this view.

The President of the US Federal Reserve (Fed), Jerome Powell and the President of the European Central Bank (ECB), Christine Lagarde, state that inflation will not be permanent.

However, in his latest statements, Powell points out that the supply-side constraints underlying inflation have worsened and underlined that supply bottlenecks must be resolved before inflation can be reduced.

In the US media, comparisons are made between the current economic situation and the late 1960s, and comments are made that once inflation starts to rise, it will be very difficult to contain inflation without creating an artificial recession.

In the late 1960s, the economy was overheated in the country and inflation was out of control, resulted in an increase in prices in a 10-year period from the beginning of the 1970s.

- Danger in the US greater than EU

Former US Treasury Secretary and World Bank chief economist Larry Summer -- in his interview published in the German Handelsblatt newspaper -- states that the developments in inflation are similar to those in the late 1960s, drawing attention to the danger in the US is greater than in Europe.

"I have serious concerns about price developments. I believe the risks of inflation in the US and around the world have been underestimated," he said.

Speaking to Anadolu Agency, Ryan Sweet, a senior economist at Moody's Analytics, argued climbing inflation seen in many countries is temporary.
"The reopening of the economy is a one-time event and shortages of commodities will be resolved over the next year. Supply chain issues will remain problematic heading into next year, but the impact of inflation should begin to fade."

Inflation is reducing households' purchasing power, but it's being muted by the enormous amount of excess savings globally, he noted.

"Central banks have a playbook for taming inflation and they will tighten if the inflation problem shows signs of becoming more persistent.

According to his views, inflation won't be a significant issue over the next few years. "Elevated sovereign debt, demographics, cybersecurity and geopolitical tensions will be bigger challenges."

* Writing and contributions by Aysu Bicer in Ankara​​​​​​​