For now, low inventories impede growth and lift inflation

Inventories – normally a strong predictor of the business cycle – are uncharacteristically low, even though global growth is at record highs. This is yet another consequence of the post-pandemic recovery and all its bottlenecks and signal transitory nature of inflation rather than the state of the cycle.

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• Monthly survey indicators on new orders – another marker closely related to inventories – point to a stable recovery in most advanced economies (AEs), with Germany doing especially well. This is consistent with the state of the business cycle globally.
• A detailed breakdown for the US and Germany points to a particularly severe drawdown of inventories in the retail sector – consistent with a recent mini boom in consumption as well as bottlenecks in supply chains and shipping.
• Escalating global shipping costs have yet to abate, with the Harpex global shipping cost index standing at almost twice its historic record.