Fed Study: Supply Chain Disruptions Spurred 60% of US Inflation
A Federal Reserve Bank of San Francisco research paper suggests 60% of the US inflation surge since 2021 is due to global supply chain disruptions. An easing of these pressures is now evident with lower freight and container rates.
This is a short summary of Bloomberg's report.
Supply Chain Breakdown Causes 60% of US Inflation Surge
A Federal Reserve Bank of San Francisco research paper revealed that approximately 60% of the US inflation surge since 2021 is due to the breakdown of global supply chains. These disruptions caused a jump in consumer demand and transport costs, leading to shortages of goods that contributed significantly to US inflation rates reaching a four-decade high by mid-2022.
Easing of Bottlenecks and Potential for Reduced Pressures
Since June 2022, supply chain bottlenecks have started to ease, with the pressure index reaching a record low in May 2023. Freight rates, which contributed to inflationary pressures in 2022, have since diminished, and container rates have fallen for six weeks straight, suggesting potential for further pressure reductions.
Global Supply Chain Disruptions and Implications for Other Economies
Supply chain disruptions and subsequent inflationary pressures are not isolated to the US. In the UK, for instance, persistent high inflation has led to expectations of the Bank of England increasing interest rates, thereby escalating mortgage costs. Globally, container rates are at their lowest since May 2020 due to supply-demand dynamics, indicating a market burdened with slack capacity.