"Supply" pressures easing

Supply chain pressures at record low

Amidst all the panic about persistent inflation, it's reassuring to stop and consider how supply chain pressures are now easing (and how!). 

Let's take a look via a few illustrative graphics.

Firstly, oil prices - a key input into production - are down from around US$110 to under US$70. 

This hasn't yet been fully reflected in fuel prices, which have still been averaging close to $1.90 per litre for unleaded through the fuel cycle. 

Meat prices achieved by farmers have crashed lower since a year ago, although this also hasn't yet been reflected in supermarket prices for consumers. 

The brilliant analyst Charlie Bilello fired out a few illuminating charts on Twitter this weekend.

Global container freight rates have fallen by a remarkable -88 per cent from their highs, and are now at their lowest level since 2019, he highlighted.

The global supply chain pressure index has thus actually fallen to its lowest level in history - lower than at the depths of the global financial crisis or the bursting of the dotcom bubble.

Used car prices have fallen dramatically from a year ago, and they still have a long way to go yet to get-back towards pre-COVID levels. 

The average price of a used Tesla, for example, has fallen by US$23,000 since July last year. 

Demand set to slump

With most Aussies mortgages being on variable rate terms or short-term fixed rate mortgages, demand is about to get absolutely slammed by a rapid 400 basis point increase in interest rates. 

Logically the next phase of the cycle is heavy price discounting around the country's shops and supermarkets as demand hits a brick wall. 

We've never seen anything quite like this twin dynamic before, and it wouldn't be a huge surprise to me if quarterly inflation turned negative later next year.