The coronavirus pandemic caused a sudden and unprecedented stop and restart of the global economy. Although consumer demand has since rebounded rapidly as vaccination campaigns have progressed, a corresponding restart of global supply chains has lagged, causing shortages and driving up prices globally.

Recently, the term “stagflation”—an economic environment featuring soaring inflation, high unemployment, and slow growth—has begun to creep into the economic discourse. A major area of concern is the shipping industry, where extensive labor shortages at ports are leaving many container ships waiting offshore for weeks to offload their cargo, driving up shipping costs.

A review of the Baltic Exchange Dry Index, which shows average prices for transporting dry bulk materials across more than 20 routes, and the Harper Petersen Charter Rate Index (HARPEX), which shows price developments in the global charter market for container ships, (Figure 1), illustrates the considerable rise in costs since early 2020. However, recent pricing trends—particularly in the HARPEX—indicate that issues may have at least stopped getting worse.

Supplier delivery times are another barometer for possible supply chain problems. In the U.S., these key data are tracked in monthly manufacturing surveys conducted in several U.S. Federal Reserve districts. An average of five of these surveys shows that delivery times began to deteriorate during the second half of 2020 and reached elevated levels during the summer of 2021 (Figure 2). However, the average leveled off in May and recently turned downward.

Overall, we are experiencing the impact of the mismatch in timing between the rebound in demand versus a ramp-up in supply. In our view, the worst appears to be behind us. While markets may face a challenging combination of high inflation and moderating economic growth in the near term, we believe that the longer-term economic outlook remains favorable.