ECB: Upward Price Effects From Semiconductor Shortages Could Show Up With Big Lag

24 June 2021

By David Barwick – FRANKFURT (Econostream) – The current shortage of semiconductors can’t be clearly said to have had price effects yet, but these could develop with a significant time lag, the European Central Bank said on Thursday.

In a contribution to its fourth economic bulletin of the year, the ECB spoke of ‘limited evidence’ of the shortage’s impact to date along the pricing chain, but noted that upside effects could occur, ‘for example, from a scarcity of supply of goods, increasing pricing power at the different levels of the supply chain or from companies trying to pass on costs resulting from forced underutilisation in production.’

Still, producer price inflation for electronic components and boards, which rely heavily on semiconductors, is still negative, the ECB observed, and while motor vehicle prices have increased somewhat, computer prices have now fallen again.

‘However, it should be noted that upward price effects from semiconductor shortages might materialise but only with a substantial time lag along the pricing chain’, the ECB said.

For the moment, semiconductors would remain scarce, with the industry having to contend with headwinds throughout 2021 despite chip manufacturers’ plans to raise capacity by the end of the year, the ECB said.

The ECB cited survey evidence of ‘severe bottlenecks’ in key sectors of manufacturing including the computer and electronic, electrical equipment and automotive industries. ‘Across countries, this shortage is clearly apparent for German firms’, it added.

Motor vehicle production was particularly hard hit by the shortage, the ECB said. The central bank said its contacts with non-financial companies ‘expected supply constraints to deteriorate in the second quarter of 2021 before gradually easing in the second half of the year.’