Low Inventories Signal More Dollar Than Inflation Threat
- By Dominique Dwor-Frecaut
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- 4 minutes read
Summary
• Inventory to sales ratios are at historical lows due to supply bottlenecks, which could generate cost pressures if they last.
• But the PMIs, falling global freight rates, and rising chip shipments show supply bottlenecks are easing.
• Once that happens, rebuilding inventories would likely raise imports rather than domestic demand and inflation.
Market Implications
• Flatter curve, as the supply bottlenecks could see resolution sooner than the Fed expects.
• A likely inventory replenishment next year could negatively impact the dollar.
Summary
• Inventory to sales ratios are at historical lows due to supply bottlenecks, which could generate cost pressures if they last.
• But the PMIs, falling global freight rates, and rising chip shipments show supply bottlenecks are easing.
• Once that happens, rebuilding inventories would likely raise imports rather than domestic demand and inflation.
Market Implications
• Flatter curve, as the supply bottlenecks could see resolution sooner than the Fed expects.
• A likely inventory replenishment next year could negatively impact the dollar.
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