Demand-Pull Inflation
Source: Bloomberg, Unigestion, as of 14.09.2021. US CPI vs PPI Differential
Higher pressures for longer now seems to be a commonly accepted expectation among market participants, less so by central bankers. Examples of rising prices pour in every day and their common denominator is the imbalance between supply and demand, especially on the supply side. PPI and CPI indices have been rising in concert, although the former is outpacing the latter. The spread between PPI and CPI has not been so wide since the oil crises in the mid-1970s. Examples of skyrocketing input prices are legion: aluminium and coal prices are up 50% since their pre-Covid levels, transportation costs to move a container from Shanghai to Los Angeles have increased seven times over the same period, electricity prices by a factor of five – the list goes on.
Consequently, the combined forces of decelerating growth and higher-for-longer inflation could lead to stagflation, pushing policy makers to adjust monetary policies accordingly.
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