Global Inflation Crisis looms over the World Economy

Deutsche Bank has warned of a potential global inflation crisis hitting the world economy due to supply chain bottlenecks and commodity shortages. The forecast is contrary to the sentiment in the stocks markets, which consider the current supply crunch and consequent price rise a transitional phase. Also, Deutsche Bank has expressed worries about heavy stimulus packages overheating the economy, which could compound the problem.

Irrespective of the prediction coming true or otherwise, the world is currently facing a steep shortage of several commodities, including food, metals, semiconductors, paper, etc., and the list is growing. With it, the US Logistics Managers’ Index, a gauge of supply chains that has historically been accurate 90% of the times, predicts a big supply crunch for one year ahead. The index is based on three key factors influencing supply chains viz., inventory, transportation and warehouse expenses. Currently, the index is at its second-highest level since 2016. Besides, the Bloomberg Commodity Spot Index has also hit the highest level since 2011.

Many industry experts have pointed at this supply shortage appearing to reverse the trend of lean inventories. Fast-paced demand for goods and the fear of stocks running out clubbed with shortages, transportation bottlenecks and price spikes are forcing manufacturers to buy more raw material than needed.

Another factor that is adding to the problem is exorbitant prices and supply choke concerning the sea freight. Furthermore, there is a global shortage of containers, leading to a 200-400% jump in freight rates. Maersk Line, the world’s top container carrier, feels the rates will remain more or less the same over one more year at least. In fact, it may take two to three years for the freight situation to ease as more capacity in the form of new ships is slated to be added.

Considering all these factors, Deutsche Bank has said that the effects of the impending inflation could be biting, especially for the vulnerable sections of society, and thus poses more risk to the emerging markets worldwide.