'Severe' US delivery delays signal strong consumer demand, IIF says

The core Personal Consumption Expenditures inflation is forecast at 2.8 per cent in fourth quarter of 2022, above Fed’s September projection of 2.3 per cent

Cargo containers sit inside of a Bayonne port in October in New Jersey. As surging inflation and supply chain disruptions are disrupting global economic recovery, the IMF has projected the global economy will grow by 5. 9 per cent this year – a 0. 1 percentage point lower than its July estimate. AFPShow less

The US is facing "severe" delays in delivery times, with firms marking up their prices far above other countries, signalling strong consumer demand on the back of the country's fiscal stimulus measures, according to the Institute of International Finance (IIF).

The overstretched delivery times driven by consumer demand, rather than a shut-down in production, indicate "overheating" in the US and have a direct impact on the outlook for inflation in the medium-term, the IIF said in a report last week.

"The US remains an outlier both in terms of the severity of delivery time delays and in terms of price mark-ups," the report authors said. "We think US outlier status signals strong demand and therefore bears directly on the US overheating debate."

US delivery delays are comparable to the levels that Japan saw in 2011 after the Fukushima nuclear disaster, according to IIF data.

The forecast for the US core Personal Consumption Expenditures inflation in the fourth quarter of 2022 is 2.8 per cent year-over year, well above the US Federal Reserve's September projection of 2.3 per cent, according to the IIF.

"In short, US supply disruptions have a heavy demand component and signal more persistent, i.e. less transitory, inflation," the report authors said.

Earlier this month, US President Joe Biden announced that two of the biggest ports in the US, the Port of Los Angeles and the Port of Long Beach, will begin operating around the clock in what could be a “game changer” for the country's supply chain. About 40 per cent of shipping containers that enter the US arrive via these two ports.

The goal, Mr Biden said, is not only to address the immediate concern heading into the holiday season but to resolve the supply crisis exposed by the Covid-19 pandemic.

White House officials, scrambling to relieve global supply bottlenecks, have said Americans may face higher prices and empty shelves this Christmas season and are urging patience.