Supply chain issues, oil shocks and inflation

The Federal Reserve Bank of New York has just released an update of its “Global Supply Chain Pressure Index” (GSCPI). The GSCPI is designed to capture global supply chain disruptions using a wide range of indicators. Accordingly, supply chain pressures worsened again in April (latest available data), after having eased throughout the first quarter of the year.

“As the chart indicates, the worsening of global supply chain pressures in April was predominantly driven by the Chinese “delivery times” component, the increase in airfreight costs from the United States to Asia, and the euro area “delivery times” component, as other components have eased over the month. These developments could be associated with the stringent COVID-19-related lockdown measures adopted in China, as well as the consequences of the Ukraine-Russia conflict for supply chains in Europe.“

In addition to this update, the NY Fed also published a corresponding working paper, “The GSCPI: A New Barometer of Global Supply Chain Pressures“, which not only explains the methodolgy behind the index but also provides some important estimates of the inflationary impact of the supply chain pressures as well as of the oil price shocks. The charts below summarize the contributions of these factors to producer price (PPI) as well as consumer price (CPI) inflation in the US and in Europe. To the best of my knowledge, this is one of the first attempts to disentangle the impacts of these various shocks that are currently hitting the global economy simultaneously.