Supply Chain Issues Continue To Fade, Disinflation To Follow Gradually

Evidence continues to mount that global inflation has likely peaked, or at least, is in the process of peaking. Apart from most commodity prices continuing to fade from the 2022 highs, supply chain bottlenecks continue to show signs of easing.

• The latest evidence is the August Global Supply Chain Pressure Index (GSCPI) published by the New York Fed, which fell to the lowest since January 2021. The 1.47 reading means that the indicators used in the index are 1.47 standard deviations above their long-run average value, vs an estimated peak of 4.31 in December 2021.
• The NY Fed describes the August moderation as "quite broad-based, with decreases in delivery times recorded for all the countries in the sample."
• Historically, peaks and troughs in the GSCPI have coincided with peaks and troughs in producer price inflation, with about a 12-month lag. With bottlenecks looking to have peaked around the turn of this year, it's reasonable to expect that the multi-decade highs in U.S. core producer prices should moderate further toward the end of 2022 and into 2023 (see chart).
• In terms of magnitude, though, core producer prices will probably remain elevated (above 3-4% Y/Y) through the first half of 2023 at least. That in turn should translate into moderating, but still high, goods price inflation for consumers - with a further lag.

Source: NY Fed, BLS, MNI