But the gap could get worse, causing headaches for policymakers, who have to manage what happens next.
What’s happening: The world’s biggest central banks will make much-awaited announcements on policy this week. But unlike at the start of the pandemic, when their actions to prevent a global depression were highly synchronous, the response to inflation and the O’Micron version is expected to vary widely.
The Fed is not afraid of concerns about the spread of the Omicron variant, as the United States has so far refrained from implementing new sanctions. Consumer spending still looks strong, and unemployment claims recently fell to their lowest level in 52 years.
“The activity story is still pretty good,” ING’s chief international economist James Knightley told me. There is early evidence that Omicron really doesn’t have a major impact on consumer behavior.
Even before the arrival of Omicron, the economic recovery in Europe was losing momentum due to the supply chain crisis and high number of coronavirus cases. The UK economy grew just 0.1% in October.
This puts the Bank of England and the European Central Bank in a difficult position as they also try to fight inflation. If they move too quickly to take back support and attempt to control prices, they risk reversing hard-earned gains in activity and jobs.
Knightley expects the Bank of England to refrain from raising interest rates this month, as previously expected. The ECB, he said, could announce a transition bond-buying program in March to prevent a cliff-edge, when pandemic-era buying is about to end.
“The need is greater,” said Jeffrey Sachs, head of investment strategy for Europe, the Middle East and Africa at Citi Private Bank. “Economic data so far in early summer has been weak.”
China’s recovery started early compared to Europe and the United States, so it went faster. The government’s crackdown on excessive borrowing in the country’s real estate sector has also contributed to the slowdown. But Beijing will also have to worry about higher producer prices, Knightley said.
Why this matters: In March 2020, it was clear what central banks had to do to avoid a catastrophe. But now it will not be easy to reverse. The task is made even more difficult by regional differences that can obscure the direction of travel.
“It’s a very difficult road for central banks to walk right now,” Knightley said. “You’ve got exposure to work on both sides.”
Hope shines in supply chain nightmare
Epic Port congestion is decreasing. Shipping prices are falling from sky high. Delivery is slowing down a bit.
More and more, there are signs that the mess in the supply chain is finally starting to clear up, my CNN business associate Matt Egan reports.
That doesn’t mean the supply chain nightmare is over. This. And the situation may not be anywhere near normalcy anytime soon.
Traders are still grappling with the shortage of truck drivers. Critical components, including computer chips, are scarce. And the Omicron version threatens to put renewed pressure on supply chains.
Still, there is evidence that the bottlenecks are beginning to clear. It is encouraging that unprecedented stress on supply chains has contributed significantly to historic levels of inflation in the United States.
“I believe the worst is over,” said Moody’s Analytics economist Matt Collier. “There are figures that show that things are improving. But there’s still a ton of uncertainty.”
Remember: When the world economy shut down – and then rapidly reopened – at the start of COVID, the logistics network came under enormous pressure. Demand for goods skyrocketed and timely supply chains succumbed to pressure. The worldwide coronavirus outbreak and inconsistent health protocols added to the mess.
But reason for optimism can be found in recent economic reports.
For example, the Institute for Supply Management’s manufacturing survey backlog of orders index fell to 61.9 in November, down from a record high of 70.6 in May. Backlogs are still growing, but at a slower pace. And supplier delivery rates seem to be improving, albeit from very poor levels.
The Dallas Federal Reserve Bank’s manufacturing index showed lower orders placed lower in November and the amount of time it took to deliver goods fell.
“It is still going to take a long time for supply chains across the country to be fully restored, but at least the first step towards normalcy,” Jefferies economist Thomas Simmons wrote in a recent note. Customer.
next
Monday: India Inflation Data
Tuesday: US Producer Price Index; UK unemployment data
Wednesday: Federal Reserve policy decisions; US and China retail sales; UK inflation data
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