New waves of Covid-19 cases in key manufacturing hubs in Asia could hit global supply chains – and this could cause inflation to rise faster in the US, a business adviser said on Wednesday.
Japan, South Korea, Taiwan and Vietnam are among the Asian manufacturing economies that have reported another Covid outbreak in the past few weeks. Products or components made in these economies are shipped to the United States around the world
The surge in infections is due to the fact that demand for goods from the US and China – the world’s two largest economies – contributed to a “very rapid rise” in factory gate prices in East Asia, said Richard Martin, executive director of IMA Asia.
Martin told CNBC’s Street Signs Asia that any “glitch” in the global supply chain, such as the closure of “key factories” across Asia, could lead to “a sharp spike in inflation.”
“And that actually leads to consumer prices in the US faster than consumer prices in China,” he added.
According to Reuters, the Vietnamese authorities have temporarily closed four industrial parks in the northern Bac Giang province. Three of these industrial parks are home to manufacturing facilities for Taiwan’s Foxconn, a major manufacturer of Apple products.
The Fed could raise rates sooner
Inflation has been a top concern of investors, who fear that a faster rise in consumer prices would cause the Federal Reserve to raise interest rates earlier than expected.
The US consumer price index rose 4.2% year over year in April – the largest increase since September 2008.
The Fed had previously said that a surge in inflation would be temporary as it is compared to the economy hit by the pandemic last year. The central bank also said it would keep monetary policy loose.
Martin said the Fed may be forced to raise rates sooner than expected.
“I think by the end of this year the Fed will really have to raise its key rate. Well, that’s a lot earlier than the Fed said it would. Generally, it is said that it will be a year or two later before it will raise. ” its base rate, “he said.
Martin said US manufacturing would also contribute to inflation. President Joe Biden’s heavy infrastructure spending, when it goes through Congress, will add manufacturing demand and drive prices up “very, very quickly”.
Biden has met with Democratic and Republican senators to raise support for his mammoth package, which includes rebuilding U.S. infrastructure including roads, broadband and utilities, and investing in job training and research and development.