Supply struggling to keep up with red-hot demand

The latest round of stimulus cheques and the easing of restrictions are driving a renewed resurgence in demand, with retail sales jumping by nearly 10% in March and the regional manufacturing surveys rising to their highest level since the 1970s. Nevertheless, there are signs that supply in a number of sectors is struggling to keep up, with mounting evidence that this is likely to put significant upward pressure on prices. Some of that upward pressure will eventually fade, as temporary supply bottlenecks are worked through and inventories are rebuilt. But with wage pressures already building and inflation expectations trending higher, we expect the rebound in inflation now underway to prove more persistent than the Fed anticipates.