The bank said that as of March, its Global Supply Chain Pressure index moved to a reading of -1.06, versus the revised -0.28 seen in February. Global supply chain issues, which have been a key driver of higher inflation, peaked in December 2021 and have for the most part been falling since that point. Negative readings point to pressures that are below the historical average.
"Global supply chain conditions have largely normalized after experiencing temporary setbacks around the turn of the year," the bank said in its report. The latest easing in logistics-related issues was tied to European backlogs and delivery times, as well as developments in Taiwan.
March's reading was the lowest since the -1.2 seen in
August of 2009. The index has seen extended periods of
below-average supply chain stress and was in negative territory
during the summer of 2019, ahead of the onset of the coronavirus
pandemic. There was also an extended period of below-normal
supply chain stress between roughly 2011 and 2016.
The New York Fed index points to ongoing improvements in
the kinks that had once been a major driver of the highest
levels of inflation seen in the U.S. in decades. Surging price
pressures have driven the Fed to embark on a very aggressive
campaign of raising its short-term rate target to bring
inflation, which was 5% by a key measure in February, back to
the central bank's 2% target.
"On the supply side of the economy, disruptions in
supply chains have generally improved, although not uniformly,"
Cleveland Fed President Loretta Mester said in a speech Tuesday.
"This is welcome news because price pressures can be alleviated
both through further moderation in demand and further
improvement in supply," she said.
Still, as supply chains become less affected by
logistics- related troubles, the Fed's efforts to get inflation
down further will become more challenging, as inflation emanates
from parts of the economy that are less reactive to changes in
short-term borrowing costs, such as the service sector.
Speaking on Friday, New York Fed President John Williams
described a layered environment for inflation. Higher interest
rates have cooled upward price pressures for goods, as he noted,
"supply-chain bottlenecks that plagued the economy earlier in
the pandemic have receded, which is also helping bring goods
price inflation down."
But price pressures driven by non-energy service factors
stripped of housing are "having the most trouble" abating,
Williams said. Those forces are "influenced by the balance of
overall supply and demand for these services and labor, and it
will likely take the longest to bring inflation in this sector
down fully," he said.
The Fed has penciled in one more rate hike for this year
and officials generally expect inflation to decline slowly. They
reckon economic activity will be weighed on by tighter financial
conditions and will still be impacted by the spread of past rate
rises into the economy.
(Reporting by Michael S. Derby; Editing by Andrea Ricci)
