As we wrote back in September, we are amidst an extraordinary transition period, as the global economy attempts to enter a post Covid-19 world. This period is characterised by strong economy recovery, voracious consumer demand for goods and services, resurgent industrial production and resource demand and extensive corporate investment in capacity and capabilities, but also by inherent volatility in the underlying economic data and capital markets.
Inflation remains a key concern for the markets. The recent 6.2% increase in the US Consumer Price Index, the highest reading in 30 years reignited fears of the effects of rapid and unpredictable price pressures on the economy. And the US is not unique, as inflation numbers edge up across the global economy, including Germany, the UK, Eastern Europe and elsewhere. Some of these increases reflect a normalisation of pricing for goods and services impacted by the pandemic, for example airfares and energy. But in recent months price increases have affected wider segments of the economy, namely logistics, the automotive industry, commodities and labour.
It is important to recall why these increases are happening. The global economy has faced an unprecedented rate of disruptive forces over the last three years, even before the pandemic began. Trade issues between the US and China resulted in significant disruption to global trade flows and supply chains. This was followed by the shutdown in economic activity in the first half of 2020, followed by an unexpectedly rapid recovery and a shift in disposable spending from services to products.
It is therefore no surprise that ports, semiconductor production facilities and energy producers have been struggling to fully resume activities. We see companies across the industrial spectrum working hard to secure the required investments, while addressing a myriad of challenges. Similarly, we have seen a contraction in labour force participation and shortages in key logistical sectors, such as road haulage and warehousing.
To some extent, the current changes in the labour market can be attributed to baby boomers who have reassessed their life priorities post pandemic and left the labour market, or people choosing professions with better working conditions. They are also related to complex social factors including access to childcare or general uncertainty regarding the evolution of the pandemic. Ultimately, we believe these issues will prove transitory and the global economy will readjust to more normalised levels of activity.
The question is how companies will cope and whether we are seeing any evidence of demand destruction. Only two months ago as the Delta variant raged across the US affecting job creation and raising concerns about the sustainability and pace of economic activity. Fortunately, these concerns proved to be short lived, as the US economy has continued to grow and generate jobs.
Consumers have continued to spend on discretionary purchases such as drinks, cosmetics and luxury goods. As a consequence, businesses have increased their capital expenditure as economic activity gathers pace. These investments in the infrastructure of tomorrow will be important drivers of growth for the years to come. They will enable a transition to a low carbon economy, improve energy generation and transmission, and increase factory automation among many other benefits. Ongoing digital transformation will cause businesses to continue to spend heavily to digitalise and to improve CRM systems, online marketing and e-commerce capabilities.