World Economy

Reduced Global Supply Chain Pressures a Sign of Lower Inflation on the Horizon

The Federal Reserve Bank of New York Global Supply Chain Pressure Index (GSCPI) tracks the state of global supply chains using data from the transportation and manufacturing sectors. 

Recent data from the index shows that global supply chain pressures have significantly eased since the beginning of 2022.

In a new analysis, researchers at the NY Fed find that global supply factors, as captured by the GSCPI, have a strong association with US inflation levels as measured by both the producer price index (PPI) and the consumer price index (CPI).

The authors consider a scenario where the GSCPI returns to its historical average over the course of twelve months. Their model projects that this would result in a significant easing of consumer price inflation in 2023, bringing it to below 4.0 percent in the US. The normalization of the GSCPI would be consistent with a soft-landing scenario, where inflation levels return to a more sustainable level.