Drivers of cost-push inflation - Europe
GLOBAL MARKETS
Transportation costs
AIR: HIGH | SEA: HIGH
EUROZONE
Wage growth
FADING | NOT INFLATIONARY
EUROZONE
Capacity Utilization
LOWER | NOT INFLATIONARY
Insights
CONCEPT
How are production costs influencing inflation? We monitor here: (1) global supply chains via key transportation costs to pick-up any bottlenecks (indexed); emerging wage pressures and productivity gains; (3) industrial capacity utilization. Any stress emerging from those factors will likely raise inflation in the near future.
CURRENT READINGS
- Wage growth in Europe is high, in the top range of 10-year observations. Hourly wage growth is falling against a negligible progress in hours worked - any inflation impact is unlikely.
- Deep Sea freight costs (=shipping by boat) are currently elevated and declining - a welsome sidng of relief.Air freight costs (=urgent shipping by plane) are elevated: air transportation costs remain relatively high and volatile, pointing out to ongoing inflation pressures.
- Finally, at 78%, EU industrial capacity utilizationis limited but growing, and remains below the historical limit that anticipates emerging inflation pressures.
MARKET IMPLICATIONS
In light of the above, production activites offer mixed views with some cost-push pressures that could marginally contribute to rising prices.
Remember that inflation is driven by several factors: (1) demand pull factors - too much money chasing too few goods (rising demand for goods & services with shrinking supply) proxied by economic growth; (2) cost push factors analyzed here; (3) changing inflation expectations.