And what the longer run of data indicates is that this mean-reverting property in prices – the tendency for rapid increases to be followed not just by lower but by below-average rates of inflation – applies not just to non-oil commodities or particular individual goods but manufacturers’ input prices in aggregate. This is (more or less) apparent from Chart 10. It’s also confirmed by more formal statistical tests. But retail goods price inflation likely to rise further in the near term Clearly there are risks around these judgements. Rebuilding inventories and clearing backlogs will take time. So there may in some cases be continuing pressure on suppliers of wholesale goods even after (and if) growth in final demand from consumers falls back. In addition it’s possible that not all the rises in wholesale goods prices that we’ve already seen have yet been passed on to the retail level, at least in the UK (Chart 16). If so, then annual inflation in retail goods – both in aggregate and excluding energy – is likely to rise further before it starts coming down. Chart 16: Goods price inflation likely to rise further in the months ahead  Sources: ONS and Bank calculations. 13  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  13  The third reason for a degree of caution is that these mismatches between global supply and demand for goods aren’t the only ones, it seems.
Some shifts in demand may stick (if significant numbers of people continue to work from home, for example). Some re-allocations of supply may be harder than others. If the lasting shifts in demand are towards sectors and activities that need more digital skills, for example, the corresponding increase in labour supply would take time and expense. We can’t all become IT experts overnight. Nor could one easily dismantle an office or restaurant in a city centre and transplant it elsewhere. I exaggerate, of course. Market economies face re-allocative shocks all the time and can very often absorb them without any visible effect at the macro-economic level. But this shock has been bigger than most. And 14  The DMP was only set up in 2016. Chart 21 extends this backwards using annual company accounts. Excess reallocation is calculated as the sum across firms of the absolute value of changes in employment or sales, less net change in employment/sales, expressed as a percentage of total employment/sales. The historical data from annual company accounts are calculated based on changes in employment/sales over the previous three years. The DMP data are based on realised employment/sales growth over the last two years plus expected growth over the next year. Annual excess reallocation data from the DMP are averages of monthly data. Sales and employment growth are calculated using Davis, Haltiwanger and Schuh (DHS) growth rates. This is the change between two periods, divided by the average of those two periods.