This is a topic for a more detailed report, but we question whether rising inflation, supply chain panics, and more drastic government action to try and tame labor shortages and price increases could bump into a step down in demand, exposing a significant inventory surplus – sitting between producers all over the world and consumers, mainly in the west. We are seeing travel restrictions lifted all over the world over the last couple of months as the vaccination program has brought COVID under more manageable control in many countries/regions and as leaders conclude that we just have to live with whatever residual there may be. Now, this could all change if COVID surges through the winter in the northern hemisphere, but if it does not, we could see that shift in consumer spending from goods to services that we were discussing a year ago. So far we have only seen a partial shift, and as the chart below shows we are not back to the pre-COVID trend yet. A swing would create different problems and likely not end the labor shortages based on recent experiences in restaurants that were not busy, but could not keep up, and based on some of the staff issues that the airlines are having because they are running too leanly to have the ability to pivot if weather throws them a curveball.
A swing in consumer spending patterns could create shortages in the leisure sector, but it would create surpluses – quite quickly perhaps in the materials space – “instead of buying that new car (which is too expensive and not yet available) let's take the family to Europe or the Caribbean in 2022”. If 5% of the population decided to make that decision or something like it, we probably would not curb overall inflation – we would just move it somewhere else because of the labor issues and wage inflation, but we would likely correct the durable and material imbalances almost overnight, leaving the chain with more inventory than it needs and lowering demand for materials, including chemicals. In all of our many years trying to make forecasts, it is ALWAYS the demand swings that have caused us to be surprised – negatively and positively. The fact that the consensus is for supply chains to be jammed for the medium term should be a red flag.
