From chips to ships, shortages are making inflation stick

Soaring gas prices, staff shortages, a lack of ships -- price pressures globally may be picking up faster than anticipated, challenging the view that inflation will prove transitory.

Central bankers, while adamant inflation will subside, are starting to concede it may stay higher for longer as a range of issues push up the prices of goods and services and lift future inflation expectations.

Their conclusions will ultimately determine how quickly policymakers unwind the trillions of dollars of monetary stimulus unleashed to ease the Covid-19 crisis.

"Will central bankers be more focused on growth and be a "bit behind the curve"? Or will they be more concerned about inflation and take the punchbowl away quickly?," said Charles Diebel, head of fixed income at asset manager Mediolanum International Funds.

Here are five key elements in the inflation debate:

Gasflation

European and US gas prices have soared more than 350per cent and more than 120per cent respectively this year. Oil is up around 50 per cent and Goldman Sachs expects Brent crude to hit $90 a barrel by end-2021 from around $80 currently. 

Gas and electricity make up 4.8 per cent of the euro area harmonised-inflation (HICP) basket used by the European Central Bank. Rabobank reckons the price surge is a separate 'shock' that could add 0.15 percentage points (ppts) to its 2.2per cent euro zone inflation forecast for 2021 and another 0.25 ppts to 2022's 1.8per cent projection.

Many economists see higher gas prices as here to stay, due to slowing U.S. output, rising costs of carbon emissions permits for polluters and curbs on the usage of dirtier fuels.

In China, where factory inflation hit 9.5per cent in August, power cuts have slashed output of goods from cement to aluminum.

These outages are a risk to end-users such as those in auto supply chains, Morgan Stanley said, noting "cost-push inflation and tightening upstream supply that could affect downstream production and profits."

Chipflation

Semiconductors, or chips as they are known, are tiny but are having an outsized impact on global factories. At General Motors  alone, chip shortages are seen cutting Q3 vehicle deliveries by 200,000, while falling output has sent used-car prices spiraling.

Chip prices have risen and semiconductor giant Taiwan's TSMC  is mulling further hikes of up to 20per cent . That will ripple across everything from electronics to cars and phones to washing machines. But chipmakers themselves face higher input costs from commodities to power.

"It does seem likely that these semiconductor shortages are going to persist into next year," said Jack Allen-Reynolds, senior European economist at Capital Economics.

Or beyond. Intel's  CEO predicts chips will comprise a fifth of a car's cost by 2030, from 4per cent in 2019 as vehicles become self-driving or electric.

Foodflation

Global food prices rose 30per cent year-on-year in August, an index compiled by the UN Food and Agriculture Organisation shows -- a sign of broadening price pressures.

While higher agricultural commodity prices are behind the jump, JPMorgan analysts also attribute food price inflation to pandemic-related pressures such as logistics disruptions and transport costs.

Greenflation

Stringent rules to guide the transition to a greener future are blamed for stoking 'greenflation', for instance by shutting out polluting factories, vehicles, ships and mines, in turn reducing the supply of key goods and services.