The New York Fed Index shows that the pressure on the supply chain that drives inflation may have peaked

On Sunday, November 21, 2021, a container ship docked outside the Port of Los Angeles in Los Angeles, California, USA. In October, shipments at the Port of Los Angeles fell by 8% year-on-year.

Tim Lu | Bloomberg | Getty Images

According to a new indicator from the Federal Reserve Bank of New York, the pressure on global supply chains blamed for disrupting commodity flows and triggering high inflation may finally peak.

The new tool of the Federal Reserve, it Announced in a blog post On Tuesday, the pressure on the global supply chain was dizzying. But it shows that these issues may have reached their peak, which may give the White House a welcome reprieve for trying to quell inflation levels that have never occurred since Ronald Reagan became president.

The new indicator is called the Global Supply Chain Stress Index, which records the disruption of the supply chain since 1997. The indicator has historically moved around its average value.

Fed researchers said that the surge in supply chain pressure during the pandemic offset the rise in the index, including one in 2011, when the tsunami severely hit production in Japan and floods in Thailand weakened the world’s ability to produce cars and electronics.

The organization wrote: “Compared with what has been observed since the beginning of the COVID-19 pandemic, the peak GSCPI associated with the above-mentioned events pales in comparison.”

The researchers added: “GSCPI experienced a leaping increase in the early stages of the pandemic, when China implemented lockdown measures.” “As global production began to recover around the summer of 2020, the index then briefly fell, and then in the winter of 2020 (with With the reappearance of COVID) and the subsequent recovery period rose at an alarming rate.”

The model shows that global supply pressure is about 4.5 standard deviations above normal levels—an extreme level that has not been seen since 1997. But relief may be coming.

The New York Fed team led by economists Gianluca Benigno and Julian di Giovanni wrote that the index’s latest survey results show that although supply chain disruptions are in Historical high, but “has peaked and may ease in the future.”

This prediction is good news for the Biden administration. For several months, the Biden administration has been working hard to quell public anxiety about the increase in food and energy prices caused by supply chain issues. As the prices of commodities ranging from milk to automobiles rose, consumer inflation, which rose by 6.8% in November, weakened the purchasing power of the U.S. dollar. The November year-on-year inflation data was the hottest since 1982.

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Democrats believe that as the legislative agenda is set and workers return to work, supply chain issues will be resolved.Republicans have succeeded in accusing the president Joe Biden And his colleagues, because of rising costs.

In a recent poll published by CNBC and Change Research, 60% of US respondents Said they did not approve of Biden’s handling of the economy, Which marked a 6 percentage point drop in the approval rate from September. Approximately 72% of people disapprove of his handling of the prices of daily necessities, while 66% disapprove of his efforts to help their wallets.

New metrics from the Federal Reserve Bank of New York combine several of Wall Street’s favorite supply chain measures into one integrated tool.

The first set of indicators in the main indicators measures the cost of cross-border transportation. These include the Baltic Dry Index, which tracks the cost of shipping raw materials, and the Harpex Index, which tracks changes in container shipping rates.The Federal Reserve Bank of New York has also added the Price Index of the Department of Labor, which is used to measure the cost of air freight to and from the United States.

Next, economists added indicators including national manufacturing data from the Purchasing Managers Index survey. The PMI survey provides insights into the severity of manufacturer’s delivery delays and the size of the backlog of orders in major economies including the United States, the Eurozone, and China.

The Fed subsequently tried to isolate the impact of minor supply-side issues on PMI data by excluding changes in new orders. New orders were seen as a measure of demand. Since most economists blame high inflation on supply, the team tried to “clean up” changes in demand from the model.

The New York Fed tested a total of 27 variables to estimate its GSCPI indicator. The researchers stated that they will soon publish a blog post showing how the impact of GSCPI affects producer and consumer price indices, such as the CPI of the Department of Labor.