Global Supply Chain Pressure Index (GSCPI)

The Global Supply Chain Pressure Index (GSCPI) quantifies the severity of disruptions affecting global supply chains. Created by the Federal Reserve Bank of New York, it integrates data from various sources, such as transportation costs, manufacturing metrics, and inventory levels. The GSCPI serves as a crucial instrument for assessing the overall health of the global economy, as supply chain challenges can significantly influence economic growth, inflation, and employment. Its importance has surged in recent years, particularly due to the substantial disruptions caused by the COVID-19 pandemic. The index aids in evaluating whether ongoing supply chain issues are contributing to rising global inflation or helping to stabilize it, which has significant implications for central bank policy decisions.

Supply chains are essential to the global economy, facilitating the movement of raw materials, components, and finished products worldwide. Disruptions in these supply chains can have widespread effects across various industries and economies. This is why the GSCPI has emerged as a vital economic indicator to track. Developed by the Federal Reserve Bank of New York, the GSCPI monitors and consolidates key supply chain metrics to evaluate real-time pressures and improvements compared to pre-pandemic conditions. It specifically combines data on shipping costs, delivery times, backlogs, and other relevant factors into a single indexed value. Higher values on the index signify greater global supply chain strains relative to historical standards.

Monitoring the GSCPI is crucial because supply chain disruptions can lead to numerous adverse economic effects. By keeping an eye on the GSCPI, one can gain essential insights into inflation trends, manufacturing activity, consumer purchasing power, and the interconnectedness of the global economy. When supply chains are under pressure, it results in increased costs and prices while hindering production and consumption on a global scale. Conversely, alleviating these pressures can help reduce cost increases and resolve production bottlenecks. For businesses, disruptions in supply chains can result in elevated costs, decreased output, and lost sales opportunities. For consumers, these disruptions can lead to higher prices and shortages of goods and services. Additionally, supply chain issues can negatively affect economic growth; when businesses cannot produce enough goods and services to meet demand, it can slow economic expansion and increase unemployment rates.

Supply chain disruptions also significantly influence inflation. When these disruptions occur, businesses may face higher input costs or struggle to produce sufficient goods and services to satisfy demand. This can lead to increased prices for both consumers and businesses. The GSCPI can impact inflation in several ways:

• Increased input costs: Disruptions in supply chains may force businesses to pay more for inputs like raw materials and components, resulting in higher production costs and, ultimately, increased prices for consumers.
• Reduced output: When supply chains are strained, businesses may not be able to produce enough goods and services to meet demand, leading to shortages and higher prices.

In addition to its direct effects on inflation, the GSCPI can also have indirect consequences. For instance, when supply chain disruptions contribute to rising inflation, workers may demand higher wages to offset the increased cost of living. This can create a cycle where higher wages lead to even greater inflation.

There are several recent examples of how the GSCPI has influenced inflation. The COVID-19 pandemic, for instance, caused significant disruptions in global supply chains, resulting in increased input costs and reduced output for businesses, which in turn led to a sharp rise in inflation across many countries. Another example is the ongoing war in Ukraine, which has disrupted the supply of oil, gas, and other commodities from the region, causing higher input costs for businesses and reduced output in certain sectors, further driving inflation in various countries.

The GSCPI also has a notable impact on financial markets. Severe supply chain disruptions can lead to heightened inflation and slower economic growth, prompting investors to sell stocks and other riskier assets. This can result in declines in the stock market and rising bond yields. Additionally, the GSCPI can directly influence the prices of commodities and other assets; for example, disruptions in oil supply can lead to increased oil prices, which may contribute to higher inflation and reduced economic growth.

As a relatively new index, the GSCPI has quickly established itself as a key tool for monitoring the state of global supply chains. With the increasing complexity and interconnectivity of these supply chains, the GSCPI is expected to gain even more significance in the future. The Federal Reserve Bank of New York continues to enhance the GSCPI, aiming to improve its accuracy and timeliness while expanding the range of data used to calculate the index.