Global manufacturers strain to keep up with faster economy

Factories across the globe warned they are finding it increasingly hard to keep up with demand, potentially forcing them to raise prices as the world economy looks set to enjoy its strongest year since 2011.

A slew of Purchasing Managers Indexes published Tuesday from China, Germany, France, Italy and the U.K. all pointed to deeper supply constraints. The U.S. reading from IHS Markit rose for the third month in the past four, reaching the highest level since March 2015 amid “increased capacity pressures.”

Such strains on potential output may mean companies have to hire or invest more to avoid overheating, yet it could also force them to push up prices, propelling inflation enough to squeeze the expansion. Goldman Sachs Group and JPMorgan Chase are among the banks predicting worldwide growth will be around 4 percent this year, which would be the fastest since a post-recession rebound seven years ago.

“A key development to watch out for in 2018 is the potential advent of accelerating inflation,” said Larry Hatheway, chief economist at GAM. “It matters most because it is almost entirely unanticipated by markets, yet seems likely from the perspective of macroeconomic conditions.”

Government bonds fell around the world as traders moved to price in the prospect of quickening inflation. The yield on 10-year Treasury notes increased four basis points to 2.45 percent while the 10-year break-even rate, a gauge of the outlook for consumer prices over the coming decade, approached 2 percentage points for the first time since March.

In the U.S., the IHS Markit PMI rose to 55.1 from 53.9 in November, while the euro-area index was at a record 60.6.

The monthly report showed both new orders and output were the best in 17 years as exports gained. Germany’s gauge rose to a record and France improved. Canada reached a three-month high of 54.7 on stronger new orders.