Shipping costs from China plunge, helping ease inflation
REAL ECONOMY BLOG | January 18, 2023
Authored by RSM US LLP
Moderating inflation across the global and domestic economies has been driven by declining costs of goods, which through December fell by 4.8% on a three-month average annualized basis.
We now think it appropriate that the Fed consider a strategic pause in its rate increases.
While there are risks around further disruptions to global supply chains linked to the surge in COVID-19 cases in China, for now this is a positive and constructive development that will bolster overall economic activity.
We now think it appropriate given large declines in the primary causes of inflation over the past two years that the Federal Reserve consider a strategic pause in its price stability campaign this spring.
Much of the improvement in the inflation outlook has to do with the collapse in transportation costs and year-over-year declines in the price of oil and energy.
It now costs 78% less to ship a container from China to the United States than it did last year. Shipping costs from Shanghai to American seaports reached a peak last January, decelerated during the first half of the year and have plunged since June.
The decline in transporting goods from China to the United States has coincided with general improvements in the supply chain.
The latest reading of the RSM US Supply Chain Index stands at 0.4 standard deviations above neutral and is indicative of the modest normalization of global supply chains that is taking place.
In particular, there have been a normalization of the inventory-to-sales ratio and outsized increases in wholesale and retail inventories, all of which imply a greater supply of goods and lower prices.
Considering that there remain shortages of components (particularly computer chips) and assuming a somewhat lagged response of retail prices to increases in inventories, the monetary authorities can anticipate uneven reductions in the prices of goods.
Jabil, an electronics manufacturing services company, estimates a half-year wait for basic computer chips and up to a full year for high-end chips, with easing to take place over the course of the year.
The increased supply of consumer goods implies a further decline in inflation that needs to be factored into the setting of the federal funds rate.
We anticipate that a 25 basis-point increase, as opposed to a 50 basis-point increase, is now under consideration ahead of the Federal Open Market Committee’s policy decision on Feb. 1.
Call us at (325) 677-6251 or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Joseph Brusuelas and originally appeared on 2023-01-18.
2022 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Condley and Company, LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Condley and Company can assist you, please call (325) 677-6251.