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Supply chain shortages may have peaked back in the fourth quarter. However, the improvement has been slow, and any new disruptions could result in further setbacks until supply chains can catch up and close the gap with demand. While manufacturing output has improved in many areas of the globe, there have been new and ongoing supply risks, including:
- Lockdowns in China as policymakers fine-tune COVID policies. The use of “closed-loop” systems, where workers live and work in place, can help keep output going at larger companies and the ports, but still is likely to result in a slowdown.
- The war in Ukraine has rerouted goods moving via the China-Europe express rail across Russia to more expensive and lengthy trips. Reduced availability of commodities or other inputs from Russia or Ukraine, like palladium, may lengthen the time for supply chains to recover in certain industries such as automobiles.
- Contract negotiations with the U.S. West Coast dockworkers ahead of the June 30 deadline could lead to work slowdowns or stoppages at these terminals. Prior contract negotiations resulted in disruptions in 2002 and 2014.
Should supply continue to improve and demand slow, inflation pressures may ease later this year. This could impact how rapidly central banks raise interest rates to restrain inflation. With stocks increasingly focused on the outlook for central bank actions, these supply chain indicators will be an important guide for the direction of global stock markets.
Schwab Market Perspective: Inflation's Shadow
by Liz Ann Sonders, Jeffrey Kleintop, and Kathy Jones
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