The Taiwan Semiconductor Manufacturing Company, a major producer, said last week that its own production had risen 30% in the first half of 2021, relative to the same period a year earlier, and that it expects full year growth of 60% (in response to what have been much milder price rises I think this counts as relatively “elastic” supply). The Chief Executive of the company said “we expect the shortage to be greatly reduced for TSMC customers starting this quarter”.10  One would expect this to take some of the heat out of semiconductor prices, and those of the goods that rely on them. As for shipping, which has affected the time and cost required for all international goods trade, expectations of future prices, as indicated by forward contracts (Chart 15), imply material declines over the next year or so. See, for example Winkelried (2021), ‘Unit roots in real primary commodity prices? A meta-analysis of the Grilli and Yang data set’. Journal of Commodity Markets, article in press. 10 See “TSMC signals global chip crunch may be easing”, Financial Times, 15 July 2021. 9  12  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  12  Chart 15: Forward contracts suggest material declines in shipping costs  Sources: Baltic Exchange and Bank calculations. Panamax is a sub-index covering mid-sized vessels travelling on 5 of the 23 shipping routes of the full index. It co-moves quite closely with the overall Baltic Exchange Dry Index.
Chart 8 plots wholesale price indices for oil, metals and agricultural goods. The latter two are aggregate measures. The six-fold rise in the price of US lumber provided one of the more spectacular examples for an individual commodity (Chart 9). Chart 8: Non-oil commodity prices have also risen sharply  Sources: S&P Dow Jones Indices, Bloomberg Finance L.P and Bank calculations. Chart 9: The spike in lumber prices didn’t last long  Sources: CME Group5 and Bank calculations. But there have also been sharp price increases further up the supply chain – one notable example is computer chips. And the overall picture, evident in both surveys and official data, is that manufacturers the world over have been facing significantly higher prices for their inputs than they were not just some months ago but even before the pandemic (Chart 10). In many cases (Chart 11) firms have been unable to get hold of them at all, except with long delays, with knock-on effects on their own delivery times. 5  CME Group market data is used under license as a source of information for certain Bank of England products. CME Group has no other connection to Bank of England products and services and does not sponsor, endorse, recommend or promote any Bank of England products or services. CME Group has no obligation or liability in connection with the Bank of England products and services.