Rise in Inventories Sounds an Alarm About Inflation
The move doesn’t signal waning demand. It shows how entrenched higher prices have already become.
Companies want more stock, not less, and the price of accumulating it only continues to climb.
Photographer: Scott Olson/Getty Images
As companies worldwide work to rebuild their stockpiles of goods, they are sending a message about inflation. The trouble is that message is far more worrisome than many people have concluded, and it poses a bigger-than-expected problem for policy makers and the markets.
Consider last week’s release of U.S. gross domestic product numbers for the fourth quarter. Those who thought that inflation would moderate and that the Federal Reserve wouldn’t have to tighten monetary policy as much as some have feared, myself included, pointed out that some 4.9 percentage points of the 6.9% growth came from an increase in corporate inventories. This, the argument goes, reflected slowing demand. Growth and inflation were thus likely to falter, and the Fed would not have to be as aggressive. The only problem with this reasoning is that it is wrong. Around the world, in fact, the extraordinary thing about corporate inventories is not that they are going up but that they are, in many cases, at record lows. The effort to rebuild them is not just inflationary in itself, it also indicates how entrenched inflation has already become.