Hopeful signs for end of delivery problems

Inflation in our country rose to 5,2% in November according to the CBS measure. On the European HICP measure, inflation was even 5,9%. It was the highest inflation in nearly XNUMX years.

Core inflation, ie excluding food, energy, alcohol and tobacco, was 'only' 2,5%. That was much less exceptional. However, it should be borne in mind that, as I have explained many times before (and about which I never read anything in the media), the government artificially suppresses inflation by prohibiting rent increases in the social sector and limiting it in the private market. That makes a difference of about half a percentage point in the inflation figure.

That energy is the most important, if by no means the only culprit, is apparent from the following picture, taken from the CBS site.

In November, gas prices for consumers were 53% higher than a year ago and electricity prices as much as 75%. That could be something. I've been following blogs from an American who studies solar activity for a while now. He claims that it will get colder on Earth in the coming years, actually that has been going on since 2016, due to reduced activity on the sun (we have known for a long time that activity on the sun is a cyclical whole). A severe winter would fit into that analysis, although I think you should be careful with this type of analysis. For the time being you have to say that this 'sun spot guy' is in the right for the time of year in many places in Europe with unusually low temperatures and exuberant snowfall. Anyway, if you read and refer to such analyses, you are quickly called a climate madman and you do not want that, because then you lose all credibility.

The persistently high inflation is now becoming a major problem. With Budget Day, it was still assumed that purchasing power would increase by an average of 0,8% this year and that it would more or less stabilize in 2022. But that was on a forecast that inflation (by the European measure) would be 1,9% this year and 1,8% next year. Average inflation has now risen to 2,5% up to and including November. Due to the so-called statistical spillover, inflation will remain above 3% next year unless prices fall in absolute terms. The minimum wage will increase in January to a level that is 2,4% higher than a year earlier. It is not surprising that the House of Representatives will discuss in the coming week whether the minimum wage should not be raised a little extra. The AOW is linked to the minimum wage, but it is not clear whether this will also be the case if the minimum wage is increased once. Retirees are in the corner where the blows fall, because the occupational pensions of many people will not be indexed again this year. It is incomprehensible that the purchasing power debacle in the pension sector is not causing more commotion.

In the meantime, the pension funds, which have often been unable to provide stable pensions to their members for years, are doing their best to improve the world, that is, according to their current insights. The boss of the ECB also participates in this. While the eurozone is experiencing its highest inflation in decades and the ECB's forecasts have consistently missed the mark this year, Ms Lagarde has been rambling on, focusing mainly on diversity, gender, environment and climate. She is more outspoken on these subjects than on the ECB's main task. When will this madness end?

Logistical disruptions
One of the most crucial questions for the global economy is when the supply problems in the industry will ease. Whether the supply problems are due to high demand, limited supply or a combination, the fact is that they contribute to higher prices. Any relaxation on the inflation front will only materialize once those supply problems ease. So we have to look for signals in this area.

In November, Chinese exports rose to a new record. The dollar value of Chinese exports was more than 21% higher in November than a year ago. Due to the corona crisis, year-on-year comparisons are not always very informative. That is why reference periods from before the pandemic are often looked at. Compared to November 2019, the Chinese export value (in dollars) was more than 47% higher. That was the strongest increase since February this year and you have to go back to 2012 for such growth percentages. That suggests Chinese manufacturers are starting to get their act together if they don't already have it. I would see this as a hopeful sign that the industry is starting to overcome the supply issues. I must add that these are dollar values. So price and exchange rate movements are in these numbers, which may therefore give a flattering picture of reality.

German industry
Closer to home, German industrial data hit this week. I've been showing pictures for months that show that order books are developing much better than actual production. Such a hole cannot exist. It will either be closed by an explosion of production or by a collapse of orders.

Manufacturing production increased by no less than 3,2% in October compared to the previous month. That was only the third month this year in which production increased. Compared to a year earlier, production was still 1,4% lower. A swallow certainly doesn't make a summer, but a strong rise in German industrial production is a first sign that supply problems may ease.

Orders went in the wrong direction in October. They fell by no less than 6,9% (month-on-month) in one month and by 1,0% year-on-year. These numbers are volatile, so we have to be careful with the interpretation. The question now is whether this sharp drop is just 'noise', or whether buyers of German industry are giving up hope of delivery or whether they are hopeful that deliveries will be made and therefore consider it no longer necessary to order more than what they need. actually need. Time will tell.

The extent to which the German and Dutch industry differ can be seen from the following picture. This divergence already started in 2018 when the automotive industry so important to Germany ran into problems.

In the Netherlands, average daily production in the processing industry in October was 9,9% higher than one year previously, according to Statistics Netherlands, slightly less than the 11,6% in September. Compared to October 2019, the increase was a very respectable 6,7%. And while October was only the third month this year in which production by the processing industry in Germany increased, production in the Netherlands rose in all but two months. Apparently, Dutch companies are well placed to cope with the supply problems of raw materials, consumables and semi-finished products. Incidentally, it is interesting to note that in a downturn, such as in 2008 and in 2020, German production falls much more sharply than ours.

US labor market remains tight and tightening
In the week of December 4, the number of new unemployment benefits in the US fell to 184.000. That was the lowest number since September 1969! It is clear that the labor market is tight and is getting tighter. In October, the number of unfilled vacancies increased again. In July, more than 11 million vacancies were opened for the first time. After that, this number decreased slightly, perhaps due to the delta variant. But in October, the stock of vacancies increased again. In January this year, there were 0,7 vacancies for every unemployed person. There are now more than 1,5. The tight labor market is leading to stronger wage increases and companies that have always kept unions out are now giving in.

The number of people who feel confident because of the strong labor market is also increasing by leaps and bounds. The following graph shows the number of people who resign each month. There is a strong seasonal pattern in such numbers. That is why I am showing the average of the last twelve months here. It is nice to see that there was a certain relaxation earlier this year due to a temporary weakening of the economy, but that growth and tension in the labor market have clearly increased again in recent months.

Inflation continues to rise
Inflation continues to rise. And while I suspect we're close to the peak, I don't think inflation will fall any time soon after that. Purchasing power remains under pressure in this way. It is shocking how the ECB, the person primarily responsible for keeping inflation in check, is quite laconic about inflation and thus the loss of purchasing power of citizens, while in Frankfurt more attention seems to be being paid to subjects on which the ECB does not, or at the most, self-chosen responsibility. Shoemaker, please stick to your last. The fact that DNB also plays a role in the pension debate in our country, as a result of which the purchasing power of the pensions and pension rights of millions of citizens has been eroded for years, is all the more sad.

Whether and when the world's logistics problems and the related supply problems in many sectors will ease is a crucial question for who predicts economic developments in 2022. Chinese trade figures suggest that Chinese companies are now reasonably in order, and the latest figures on production in Germany's manufacturing sector also offer some hope. However, we will need to see further improvements in the coming months to be confident in a more sustained reduction in issues.

Finally, the US labor market was already tight and is quickly getting tighter. The Federal Reserve cannot leave that unanswered and will no doubt announce further policy adjustments in the coming week. To be continued.

Hans de Jong

Han de Jong is a former chief economist at ABN Amro and now a resident economist at BNR Nieuwsradio, among others. His comments can also be found on Crystalcleareconomics.nl

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