August 8, 2022

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When will inflation peak? Supply-chain index has a clue

2 min read

One of the first signs that inflation was going to be a problem was the supply-chain crisis of 2021.

Remember last year, when it felt like everyone moved and bought a new desk so they could work from home, and the logjam at all the ports meant all those new desks were floating in the ocean, not able to be delivered for months? The war in Ukraine and strict COVID-19 lockdowns in China this year have only made things worse.

Inflation has surged to unsustainable levels in many countries owing in part to the ongoing supply-chain nightmare, with some nations even facing political unrest and food shortages as a result. 

In the U.S., kinks in global supply chains have been responsible for roughly half of the current four-decade high inflation, according to a June study from the Federal Reserve Bank of San Francisco.

But there are now signs the pain may be coming to an end. Experts told Fortune that supply chains are beginning to heal, and that should help to reduce inflation moving forward.

Where they differ is just how long it’s going to take for the pain to go away.

The long road ahead

The New York Federal Reserve maintains something called the Global Supply Chain Pressure Index (GSCPI), which measures supply-chain constraints worldwide. The good news: It’s now down 57% from its December 2021 highs. And while New York Fed researchers said in a statement accompanying the latest index reading that supply-chain pressures still “remain at historically high levels,” the data shows the situation is improving.

Global shipping container freight rates, as measured by the World Container Index (WCI), have also dropped 37% from their September 2021 peak, according to data from shipping industry research and consulting firm Drewry.

Even though the WCI remains 84% above its five-year average, experts say the drop is evidence that global supply chains are starting the process of normalization as consumer demand begins to weaken. 

Lars…

Will Daniel

2022-08-06 07:00:00

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