Will Shortages Lead to Gluts?

Key Points

  • After a year of supply shortages, the global economy may be closer to the end of the supply chain problems than the beginning.

  • As a leading economic indicator, markets tend to look six-to-12 months ahead; they may soon begin to consider the possibility that some shortages may have started to ease, and gluts may have started to form by the second half of next year.

  • If supply gluts begin to emerge late next year, manufacturing inputs like semiconductors, finished goods such as cars, and even containerships themselves may see supply outrun demand, easing inflation pressures.

A surplus of goods and materials seems a long way off at the present. Supply shortages, lifting inflation and slowing production, endured all year as strong demand outstripped supply and have been worsened by supply chain logjams.

Yet, history shows us that shortages often lead to gluts. Should a supply glut emerge in 2022, it may lead to a fall in inflation as excess inventory prompts price cuts. This complicates central bankers’ tasks and helps explain their very slow steps towards ending pandemic-era policies. If they view the shortages as transitory, they want to be careful when raising interest rates to cool inflation pressures as a potential glut of supply also may begin to weigh on prices in the year ahead.