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“The surge in the ISM service PMI to a record-high 63.7 in March, from 55.3, illustrates that it isn’t just the manufacturing sector that is experiencing a combination of strengthening demand and supply shortages, which is putting strong upward pressure on prices,” note Capital Economics analysts.

Key quotes

“There is clearly a big surge in activity underway, as the drop in case numbers and successful vaccination program allows restrictions to be lifted, at the same time as Biden’s $1.9trn in additional fiscal stimulus is super-charging incomes. The business activity index hit a record high of 69.4 last month, from 55.5 in February. The new orders and employment indices were also at almost unprecedented levels.”

“At the same time, supplier deliveries edged up to 61.0, from 60.8. The latter isn’t a record high because the index also surged in the early stages of the pandemic when a lot of production was shuttered, but it is at a level consistent with a marked pick-up in services price inflation.”

“The comments included in the survey report also illustrate that many sectors, including construction, wholesale, information, and even accommodation & food services, are experiencing shortages. Moreover, that isn’t just shortages due to logistics and raw materials. Echoing the manufacturing report, the comments also highlight increasing problems with labour shortages, which suggests rising inflation may not be as transitory as many Fed officials appear to believe.”