Global semiconductor shortage to exert upward pressure on inflation – CE

There have been growing concerns over a global shortage of semiconductors – a key input to production of most electronic goods. Strategists at Capital Economics analyze the global economic implications of chip shortages.

Key quotes

“While strong demand for semiconductors should continue to benefit the key producers in Asia, supply constraints will limit the pace of export growth in the near term. And in any case, growth of demand for consumer electronics is likely to slow from its recent rapid pace later this year, implying that the boost to Asian exports will fade.”

“Semiconductor shortages could derail the recovery in motor vehicle output, at least until semiconductor production adjusts. For the world as a whole, motor vehicle production accounts for little more than 1% of total output. But auto-dependent economies including Germany, Mexico and several in Central Europe could feel significant effects.”

“Increases in semiconductor prices will add to upward pressure on inflation in the coming months. Shortages in the chips are coming on top of a surge in the prices of the metals that are used to produce them, so sharp price increases seem inevitable.”

“A shortage of semiconductors will be one of several factors boosting inflation in the near-term. In Europe, we suspect that the weakness of domestic demand will ensure that such pressures are transitory, but supply shortages could drive a more sustained rise in inflation in the US.”