For manufacturers, 2011 was a year of significant upward pressure on input costs.
But in the last couple of weeks, data releases on consumer prices and producer prices would suggest that inflation is now starting to come off the boil. The year to December saw the slowest annual increase in producer input prices since October 2010.
High and volatile input prices can cause significant problems for manufacturers, so it is good news that price pressures are starting to ease. However, since the global recovery began, another problem has emerged: that of availability.
Over 80% of manufacturing executives said that a shortage of raw materials was a significant risk in 2012.
Our survey of manufacturing executives found that concern about the availability of raw materials is pervasive, across all sizes of business and industry sectors. In fact raw material shortages are such an issue that two thirds of companies saw this as the top risk to their business plans in the year ahead – considerably more than any other issue.
Why is this?
While some risks may dent growth, or cause less concrete knocks to business, being able to business, being unable to secure or fulfil orders, or having to run below optimum capacity are real and tangible outcomes that can arise quickly when there is a lack of raw materials.
Outlook for prices and availability
Slower global growth as a result of the Eurozone crisis and the Chinese government's attempts to engineer a ‘soft landing' may have abated pressure on input prices, but availability and price of specialist materials such as metals and rare earths remain an issue.
The weaker economic outlook may alleviate commodity prices, but with global demand for inputs continuing to rise, the issue of raw materials prices and shortages is set to be a perennial one.