Inventory Growth Slows as Businesses Struggle with Supply Chains and Inflation

The pace of inventory accumulation by U.S. businesses slowed in July but the extent of the slump was partially hidden by high inflation.

Business inventories rose 0.5 percent following a 0.9 percent increase in June, the Commerce Department said on Thursday.

Inventories are a key part of the calculation of gross domestic product. And inventory growth is often a signal of rising business confidence and a growing economy.

But the message of the June and July inventory accumulation is less clear because of inflation. The inventory numbers are reported in nominal figures, not adjusted for inflation. That’s not a problem when inflation is mild. But when inflation picks up, as it has this year, growth in nominal numbers can actually signal contractions in output.

The Producer Price Index for processed goods for intermediate demand, a rough proxy for inventory spending, rose 1.9 percent in June and 1.7 percent in July. In other words, when adjusted for rising prices, inventories actually contracted in those months. – READ MORE