Sharp Easing In Supply-Chain Pressures Yet To Be Seen In OECD Core Prices

The April Federal Reserve of New York’s global supply chain pressure index fell to its lowest since November 2008 and is signalling a sharp easing in global headline inflation pressures and should begin to put more downward pressure on core over the coming months. OECD and non-Japan Asian inflation eased in April but not in all countries. The large gap between inflation rates is reflected in the difference in central bank activity.

• OECD CPI inflation in April moderated to 7.4% y/y from 7.7% the previous month and is now down 3.3pp from its October 2022 peak. Underlying was at 7.1% from 7.2% but is only down 0.7pp from its peak, signalling the stickiness that is worrying central banks and likely to sustain tightening biases for the time being. Given base effects from energy prices are going to put downward pressure on headline over the rest of the year, it is likely to fall below core soon.
• The Fed is currently expected to pause at its June 14 meeting but the ECB is likely to hike 25bp on June 15 and the BoE on June 22.
• Non-Japan Asian inflation ex China eased to 4.3% y/y in April from 4.9% to be down 2.1pp from the September 2022 peak, while core was steady at 3.8% and 0.4pp lower than the January 2023 high. Central banks across Asia have begun to pause monetary tightening as inflation heads back to target, whereas most in the OECD are either continuing or only now contemplating pivoting, reflecting that Asian inflation remains well below the OECD’s.