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Supply shortages are declining in the United States and worsening in Europe

The shortening of supply, which has helped inflation peak for decades, shows some signs of easing in the United States – but is still deteriorating in Europe.

This is the conclusion of the latest indications for the new set of indicators for the supply of Bloomberg Economics. The US measure declined in October, while remaining at a historically high level, suggesting that the shortage is becoming less severe.

If the trend continues in 2022, the shock of high prices for US consumers should begin to fade. That could make life at least a little easier for newly elected Federal Reserve Chairman Jerome Powell, who is under pressure to tighten monetary policy as prices rise.

The improvement in U.S. supply cuts supports President Joe Biden’s view that bottlenecks are easing as his administration moves to seamless operations in West Coast ports. His popularity has plummeted recently amid economic concerns such as inflation, with only 43% of voters approving of his work, according to an analysis by FiveThirtyEight polls.

“More goods are moving faster and cheaper from our ports, to your doorsteps and to store shelves,” Biden said on Tuesday. Large retailers such as Walmart Inc., Target Corp. and Home Depot Inc. “They have confirmed that their shelves will be well stocked in stores this holiday season,” he said.

The US supply indicator – and comparable Bloomberg Economics indicators for the euro area and the United Kingdom – is based on a range of data from factory prices to stocks and outstanding orders. Positive readings, as in the last few months, point to limitations, while negative ones – as in the first months of the Covid crisis – mean that goods are relatively abundant.

The US measure shows that supply shortages peaked in the summer and have been moderately lower since then. This was supported by the decline in the backlog of orders and prices for manufacturing companies, both of which fell from the summer peaks. The same is true for prices for industrial materials and the ratio of orders to inventory for retailers.

Not all components of the indicator in the US are improving. Supply constraints in the services sector continue to worsen, and labor shortages do not appear to be diminishing. With the country’s inflation rate at 6.2% and expected to rise higher in the coming months, one concern for the Fed will be whether the temporary drivers of high prices – linked to the supply crisis – will give way to more durable such as wages rising.

In the euro area, Bloomberg Economics shows that conditions are still deteriorating. The supply shortage helped boost inflation in the bloc to 4.1% in October, the highest level in two decades.

There is little relief for the European Central Bank’s hawkish inflation sentiment: the rate of deterioration seems to be slowing.

However, the ratio of orders to inventory in European factories and shops continues to grow. And in Germany, the economic power of the continent, the number of jobs for every job seeker is also increasing – a labor shortage that may begin to raise wages.

The picture is largely similar in the United Kingdom, whose gauge reached a new peak in October.

Measures on producer prices, stock levels and labor market conditions show that the shortage is becoming more serious. The impact of the rapid reopening of pandemic blockades, a global phenomenon, is exacerbated by something unique to Britain: the trade frictions following the country’s exit from the European Union.

With inflation in the UK at 4.2%, the Bank of England is expected to raise interest rates earlier than its counterparts in the Fed and the ECB. However, all these central banks face a similar risk. Rising interest rates, which stifle demand rather than stimulate supply, can stifle economic recovery as well as inflation.


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