Amid a cascade of disruptions, global supply chains are reaching crisis levels in many sectors, which could have serious knock-on effects on economies, including the threat of higher and more persistent inflation. As economies started to recover from the shock of Covid-19 last year, the long-suppressed demand for materials and goods rebounded faster than expected. With many workers either furloughed or slow to return to work, production could not keep up with the surging demand. The resulting shortages of raw materials affected the production of finished goods. A series of disruptions in Asian economies - which are critical to the smooth functioning of supply chains - compounded these problems.
Port shutdowns in China and factory closures in Vietnam following a resurgence of Covid-19 cases caused delays in both production and shipping, as well as sharp increases in transport costs. Energy shortages after cutbacks in the production of fossil fuels, on which many economies were still dependent, led to soaring energy prices. All of these developments which happened almost simultaneously, fed into higher prices for goods, including food. Soaring demand for semiconductor chips amid a shortage of production capacity also disrupted the production of vehicles, appliances and consumer electronics, pushing up their prices as well.