Chip shortage index edges down, but Nomura still expects price pressures to persist into 2027

Why doesn't the slight decline in the index mean the shortage is easing?

Nomura's Chip Shortage Index (CSI) was 104.0 in October, slightly below the upwardly revised 104.1 in September; the index uses 100 as the supply-demand equilibrium line, with readings above 100 indicating a shortage.
Data from July through September were revised upward, including increases of 0.47 points for August and 0.25 points for September, raising the third-quarter average by about 0.33 points. The higher September base made October appear weaker month on month and also showed that the third-quarter shortage had previously been underestimated.
Nomura's cycle clock, which classifies phases according to the index's trend level and momentum, remains in the boom phase. Its latest position shows stronger upward momentum than a month earlier, with no clear signal yet of a supply-demand turning point.

Supply is improving, but the improvement is limited and uneven. Year-on-year growth in South Korean chip production rose from 0.3% in July to 1.4% in August, while the inventory-to-shipment ratio fell from 0.56 to 0.51; Taiwan's electronics industry production PMI fell from 63.7 in August to 60.0 in September, but remained in expansion territory.
Demand remains strong, although some growth rates and leading indicators have cooled. Taiwan's information and communications technology export orders rose 87.3% year on year in September, down from 100.5% in August; the Taiwan electronics PMI new orders index fell from 67.5 to 56.7 over the same period, but remained in expansion territory.
The market consensus forecast for year-on-year growth in capital expenditure by four major technology companies over the next 12 months fell from 138.6% in August to 130.6% in October, still a very high level.

Memory prices still reflect tight supply and demand: South Korean DRAM export prices rose 247.7% year on year in September, compared with 249.2% in August; year-on-year growth in NAND export prices edged down from 246.4% to 244.0%. The price of DDR5 rose from 49.3 dollars in September to 50.5 dollars in October, hitting a new high.
Based on the relationship between the CSI and semiconductor prices, Nomura expects the persistent shortage to support rising chip prices through year-end. Its cycle model also points to price gains continuing into 2027 and beyond; the bank's technology team expects AI infrastructure development to accelerate in 2027, but the outlook for 2028 remains unclear.

Nomura's historical analysis shows that the CSI leads South Korean mobile phone and computer CPI inflation by about 8 months, and Taiwan's education equipment and supplies CPI inflation by about 11 months; the latter is used as a proxy for consumer electronics inflation.
Chip shortages raise costs for downstream electronics manufacturers, but inventories, procurement contracts, production cycles and companies' pricing decisions delay the pass-through to retail prices. As a result, even if chip shortages begin to ease, consumer electronics prices may continue to face upward pressure in 2027.
Nomura notes that computers face greater price pressure than mobile phones because their costs are more heavily affected by memory chip prices. The chart shifts the CSI forward to illustrate the historical leading relationship; the extended index line is not a CPI forecast.