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Inflation seen to ease with combination of supply chain kinks smoothing, says Fitch Ratings

·1-min read

However, risks such as China's zero-Covid policy and war between Russia and Ukraine, remain

Inflation, at multi-decade highs across many developed economies, is seen to ease, given how global supply-chain disruptions are beginning to unwind, shipping rates decline, port congestion eases and the backlog of orders is cleared, raising the prospect of lower core goods (excluding energy) inflation ahead, says Fitch Ratings in its latest Economics Dashboard.

According to the research firm, the cost of shipping freight has declined by as much as 70% on some routes since September 2021 while transporting cargo now takes around 90 days instead of 122 days in April 2022. Congestion at US ports has dropped significantly, falling by close to 80% since last November.

On the other hand, consumers are slowing down their demand for big-ticket items and durables, further easing the strain on supply chains. This is because they got to put up with weaker purchasing power because of higher inflation.

“Just as core goods inflation rose sharply last year when sales outpaced inventories, rising inventories-sales ratios today could be consistent with falling goods prices inflation in some sectors. The manufacturing PMI prices index is also slowing quickly,” says Fitch Ratings.

To be sure, risks remain. China’s zero-Covid policy has continued to stress supply chains; gas rationing in Europe because of the war between Russia and Ukraine may affect industrial supply chains.

“Nevertheless, recent improvements to global supply chain pressures are encouraging,” says Fitch Ratings.

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