By Michael S. Derby
May 6 (Reuters) – Supply chain pressures in April hit their highest level since July 2022, as the Middle East war heavily impacted firms’ ability to move goods around the world freely, data from the Federal Reserve Bank of New York released on Wednesday showed.
The Global Supply Chain Pressures index moved up sharply to 1.82 in April, from March’s 0.68. The New York Fed did not give any explanation for the factors driving up the index. The index stood at 1.86 in July 2022, while the rate of change seen between March and April this year was the largest monthly change since March 2020, when the COVID-19 pandemic took hold on the global economy.
The rise in the index’s April reading was not surprising given the massive disruptions emanating from the conflict kicked off by President Donald Trump’s attack on Iran. That conflict has brought the flow of trade through the Strait of Hormuz to a virtual standstill and has notably driven up energy prices around the world.
Thus far, there has been no resolution to the conflict that allows trade to flow.
On Monday, New York Fed President John Williams said “notable” supply chain pressures have begun to boil and recent data showed the current situation “echoes the severe shortages and supply disruptions that the world economy experienced in 2021 as it emerged from the pandemic.”
Then, supply chain disruptions coupled with the government response to the pandemic ultimately led to the highest inflation seen in decades, and even now, with the health crisis well in the rearview mirror, inflation has failed to return to the Fed’s 2% target.
Inflation data is already showing rising price pressures fueled by Trump’s import tax surge and higher energy costs driven by the war. Many economists are warning of even greater inflation pressures if disruptions tied to the war are not quickly ended.
That’s put the Fed in a bind. Officials have been backing away from expectations earlier in the year of a rate cut this year and are increasingly moving to expect steady rates for the foreseeable future, or even the possibility of a rate hike, the longer high inflation pressures persist.
Underlying inflation measured by the personal consumption expenditures index is likely to be just under 3% in the fourth quarter, said economists at Evercore ISI. “Roughly 50 basis points of that comes from tariffs, oil and supply chain disruptions, plus another 20 basis points from AI cost spillovers,” they said.
(Reporting by Michael S. Derby; Editing by Andrea Ricci )
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