Inflation brews in US firms
Materials shortages, pay hikes boost costs
Inflation continues to brew in America’s industrial heartland as growing materials shortages cascade into record-long delivery times and leave manufacturers struggling to keep pace with an energized economy.
As producers attempt to navigate supply-chain pitfalls for the commodities necessary to produce their wares, wage growth is beginning to percolate. A recent Labor Department report showed the largest quarterly increase in worker pay at companies since 2003.
This combination of higher labor and materials costs will probably lead to a bigger pickup in consumer inflation at a time when monetary and fiscal policies are conducive to faster economic growth. Colgate-Palmolive Co., food and beverage maker Mondelez International Inc. and Kimberly-Clark Corp. are among a growing number of companies raising prices.
While Federal Reserve Chair Jerome Powell says the central bank views the shortages in materials and supply-chain challenges as temporary, companies are saying the constraints will linger, possibly into 2022.
The Labor Department releases April inflation data on Wednesday.
Longer lead times are one of the clearest indications of the supply-chain challenges that producers face. Wait times of factories for production materials grew to 79 days in April, the longest in records dating back to 1987, according to the latest Institute for Supply Management data. The average delivery time of supplies for maintenance, repair and operations was also the longest in ISM data.
Such delays have inflated order backlogs to record levels and kept a lid on a breakout in production growth.
The ISM’s monthly reports also provide a clear indication of a growing number of commodities in short supply. In November, purchasing managers listed 8 materials companies were struggling to get their hands on. Five months later, it’s expanded to 24.
While some things, such as personal protective equipment and gloves, have been in short supply for months, aluminum, wood pallets and rubber-based products are among new additions to the list.
Meantime, companies’ largest cost, labor, is rising as the lifting of COVIDs restrictions increases economic activity.