Will U.S. Inflation Hit Part Markets As Airlines Recover?
U.S. consumer prices jumped more than 5% in the year to July 2021, the highest annual rate in many years.
That has prompted worries that chronic inflation may return to U.S. consumer markets.
But some argue the increase is due chiefly to temporary capacity bottlenecks that will fade as industry recovers from pandemic restraints.
Something similar may be going on in at least some commodity markets crucial to production of aircraft and engine parts. The producer price index (PPI) for titanium has been stable or slightly declining over the last year.
But the index for nickel and nickel alloys, essential to engine manufacture, rose 17% from March 2020 through July 2021. And the PPI for aluminum increased 22% over the same period.
The PPI is based on list prices from manufacturers of these metals, and list prices traditionally move more slowly than spot prices. Tracking spot prices shows a more dramatic picture.
The Dow Jones commodity index for all industrial metals rose 41% in the year to Sept. 3. Spot prices of nickel increased 38% since immediately before the pandemic hit. Spot prices for aluminum rose even more sharply, about 50%, over the same period.
Airlines have been expecting a good deal of cost relief from the used-part market, as some older models are torn down for parts.
The disassembly boom has not started yet, and newer types must still mostly rely on OEM parts. Unless the recent price rises abate or reverse, this could mean some stiff bills for restocking of inventories.
Economists are divided on how enduring the recent surge in U.S. prices are. Harvard economist and former Treasury Secretary Lawrence Summers worries that increasing housing costs have not yet fed into the consumer price index (CPI) and that tightened labor markets portend more price increases in the future.
On the other hand, the U.S. price problem may be at least partly confined to the U.S. For the dollar has lost about 7% of its value versus the euro in the past 18 months, as the EU’s equivalent of the CPI, the HICP index, has stayed well below the 2% annual rate generally sought by policymakers to avoid a wage-price spiral.