One of the more reliable predictors of inflation is the amount of time it takes for suppliers to deliver goods to businesses. And those wait times have been getting longer.
Why it matters: Inflation is rising. It’s a big concern for consumers and top of mind for the central bankers responsible for promoting price stability.
- Suppliers’ delivery times have a particularly strong correlation to inflation because a longer wait time is a sign of a shortage.
Flashback: Suppliers’ delivery times were one of Alan Greenspan’s favorite leading indicators of inflation.
State of play: When delivery times lengthen we typically see price growth accelerate, IHS Markit chief business economist Chris Williamson observed in a research note on Wednesday.
Between the lines: Businesses selling a lot of goods will order more from their suppliers. If suppliers can't deliver in a timely manner, businesses will have fewer goods to sell to demanding customers.
- This gives businesses leverage to raise prices. Also, if they don’t have much excess inventory to offload, then customers won’t find many deals in the discount bins.
Zoom out: Longer supplier delivery times in recent months can be tied to the COVID-19 pandemic, which led to factories idling and workers staying home. The pandemic triggered other far-reaching disruptions like the global chip shortage.
What to watch: The recent spike in delivery times is unsettling. We'll see if that corrects soon or continues to spill into the inflation data.