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The latest PMI data compiled for JPMorgan by S&P Global
revealed an unwelcome mix of sluggish global economic growth and
soaring business costs in May. Although global supply chains showed
tentative signs of healing, taking some pressure off raw material
cost inflation, May saw service sector cost inflation hit a new
all-time high as companies struggled amid tight labour markets and
energy prices surged higher. Worryingly, the steepest rise of all
was recorded for food manufacturing, where the rate of cost
inflation was at an unprecedented high to suggest that the
cost-of-living crisis is showing no signs of abating yet.
Developments in China and Ukraine meanwhile added uncertainty to
the inflation outlook, albeit with risks tilted towards persistent
elevated inflation.
The following survey data reflect information provided by panels
of over 30,000 companies in 45 countries and tell the story of the
current inflation picture in a dozen key charts.
Subdued growth and soaring costs
Chart 1: Global PMI output, prices and supply
delays
Although global output growth picked up slightly in May, it
remained at one of the weakest levels seen so far in the pandemic
recovery period, according to S&P Global's PMI business survey
data. At the same time, the survey's gauge of input cost inflation
hit the second highest since the commodity price surge of 2008-09,
easing only marginally from April's peak.
Chart 2: Input costs in major developed
economies
While the UK and US are reporting the steepest cost increases of
the world's major economies, with new record rates of inflation
witnessed in May, costs are also rising at unprecedented rates in
Japan and Brazil and at near-record rates in the eurozone, India
and Russia, albeit with the eurozone and Russia reporting easing in
their rates of inflation. Meanwhile price pressures remained
relatively subdued in China, linked to low demand arising from
lockdowns and reports of government price interventions.
Chart 3: Input costs in major emerging
markets
Potential peak in manufacturing cost
growth
The path of inflation by sector has been notable over the
pandemic. Price rises were initially led by manufacturing, with
surging industrial material prices stemming from a combination of
supply bottlenecks and buoyant demand in 2020 and much of 2021. In
recent months, manufacturing input cost inflation remained
elevated, but has shown signs of levelling off, and even easing
slightly, due to a peaking in the number of supply delays and a
commensurate cooling of demand.
Chart 4: Manufacturing prices, supply and
demand
Manufacturing input cost inflation remained highest in Europe
and the US (see chart 5), where supply chains delays also remained
the most widely reported (see chart 6). However, there has been a
notable reduction in the number of supply delays reported in recent
months in the US, eurozone and UK compared to peaks seen in 2021,
which helped bring raw material inflation rates down from 2021
peaks. It is a different situation in Japan, however, and many
other Asian economies, where supply chain disruptions emanating out
of China's recent lockdowns have caused unprecedented supply delays
in recent months and a further acceleration of input cost
inflation.
Chart 5: Manufacturing input costs
Chart 6: Manufacturing supply chain delays
Energy costs bring new pressures
Chart 7: Energy prices in manufacturing
While supply chains have shown signs of taking some heat out of
factory input costs in recent months, energy prices have added to
cost pressures, notably in Europe and the US, the latter feeling
the heat more than Europe in May (see chart 7).
Energy prices are meanwhile also causing major cost concerns in
the service sector, which reported upward pressures from material
prices and staff costs. All three factors have driven service
sector costs up by degrees rarely seen since data were first
available in 2005 (see chart 8).
Chart 8: Service sector cost drivers
Service sector input cost inflation exceeds that of
manufacturing
As a consequence, May saw service sector inflation measured
globally exceed that of manufacturing for the first time in almost
two years, with services costs rising at the steepest rate ever
recorded by the PMI surveys (chart 9).
Chart 9: Global input price inflation by
sector
Of the major developed economies, the UK reported the steepest
rise in service sector costs as the rate of inflation hit a new
all-time high. This was followed by the US, which also saw a record
increase. Costs pressures eased in the eurozone but merely from
April's record high, while Japan also saw a more muted but still
unprecedented increase.
Chart 10: Services input price inflation
Food inflation hits new high
Chart 11: Global input price inflation by
sector
Looking in more detail at global cost pressures by sector, the
highest rate of inflation was recorded by food manufacturers, where
the rate of increase hit the highest since comparable data were
first available in 2009.
The second highest rate of increase was recorded in the tourism
and recreation sector, with companies struggling to expand to meet
demand and have reported surging labour, fuel and other costs
-including food inputs.
Outlook
The survey data therefore indicated that global inflation is
likely to accelerate in annual terms in May and June, though
potentially cooling slightly thereafter, albeit remaining very
elevated - above 6% - in the second half of 2022.
Chart 12: Global PMI input and output price
inflation
Despite supply chain pressures having somewhat alleviated,
taking some of the heat out of raw material prices, service sector
cost inflation is accelerating as firms struggle to hire or retain
staff while soaring energy costs add to price pressures.
The key unknowns as we look to the future will be the war in
Ukraine and the COVID-19 situation in China. With any resolution to
the war looking unlikely in the near term, energy prices look set
to remain high and food price inflation could worsen as supply from
Ukraine continues to be disrupted. In mainland China, lockdown
restrictions now appear to be easing, which should help restore
some supply chain capacity to the global manufacturing network, and
therefore ease some global supply chain associated price pressures.
However, any sudden upturn of economic growth in China will likely
add to commodity price inflation, potentially offsetting some of
the beneficial supply chain impact.
In short, risks seem tilted toward the adverse global supply
situation, keeping pressure on prices for some time to come, though
uncertainties are unusually high.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
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