The Global Supply Chain Pressure Index (GSCPI) is a measure of the intensity of disruptions to global supply chains.
It was developed by the Federal Reserve Bank of New York and combines data from a variety of sources, including transportation costs, manufacturing indicators, and inventory levels.
The GSCPI is an important tool for monitoring the health of the global economy since supply chain issues can have a significant impact on economic growth, inflation, and employment.
The index has become especially valuable over the last few years, as the COVID-19 pandemic severely disrupted global supply chains.
The indicator helps determine the extent to which supply chain turmoil is still elevating global inflation versus stabilizing. This has critical implications for central bank policymaking.
What is the Global Supply Chain Pressure Index (GSCPI)?
Supply chains are the lifeline of the global economy, moving raw materials, parts, and finished goods all over the world.
When supply chains experience disruptions and strains, it can ripple across industries and economies. That’s why the Global Supply Chain Pressure Index (GSCPI) has become such an important economic indicator to monitor.
The GSCPI, developed by the Federal Reserve Bank of New York, tracks and aggregates key supply chain metrics to assess real-time pressures versus improvements in conditions compared to pre-pandemic levels.
Specifically, it combines data on shipping costs, delivery times, backlogs, and other parameters into a single indexed value.
Higher index values indicate greater strains on supply chains globally versus historical norms.
Why is it important to monitor the GSCPI?
Supply chain disruptions can have a number of negative consequences for the economy.
Monitoring the GSCPI provides vital insights into inflation trends, manufacturing activity, consumer spending power, and global economic interconnectedness.
As supply chains struggle under pressure, it drives up costs and prices while slowing production and consumption worldwide. Conversely, easing pressures helps correct cost increases and bottlenecked production.
For businesses, supply chain disruptions can lead to higher costs, lower output, and lost sales. For consumers, supply chain disruptions can lead to higher prices and shortages of goods and services.
Supply chain disruptions can also have a negative impact on economic growth. When supply chains are disrupted, businesses may not be able to produce enough goods and services to meet demand. This can lead to slower economic growth and higher unemployment.
Supply chain disruptions also have a significant impact on inflation. When supply chains are disrupted, businesses may have to pay higher prices for inputs, or they may not be able to produce enough goods and services to meet demand. This can lead to higher prices for consumers and businesses.
The following are some of the ways in which the GSCPI can affect inflation:
- Increased input costs: When supply chains are disrupted, businesses may have to pay higher prices for inputs, such as raw materials and components. This can lead to higher production costs and, ultimately, higher prices for consumers.
- Reduced output: When supply chains are disrupted, businesses may not be able to produce enough goods and services to meet demand. This can lead to shortages and higher prices.
In addition to the direct effects on inflation, the GSCPI can also have indirect effects. For example, when supply chain disruptions lead to higher inflation, this can lead to higher wages.
This is because workers will demand higher wages to compensate for the higher cost of living. Higher wages can then lead to even higher inflation, in a vicious cycle.
Examples of the GSCPI’s effects on inflation
There are a number of examples of how the GSCPI has affected inflation in recent years.
For example, the COVID-19 pandemic caused significant disruptions to global supply chains. This led to higher input costs and reduced output for businesses. As a result, inflation rose sharply in many countries around the world.
Another example is the war in Ukraine. The war has disrupted the flow of oil, gas, and other commodities from Russia and Ukraine. This has led to higher input costs for businesses and reduced output in some sectors. As a result, inflation has risen further in many countries.
How does the GSCPI affect financial markets?
The GSCPI can have a significant impact on financial markets. When supply chain disruptions are severe, they can lead to higher inflation and slower economic growth.
This can cause investors to sell stocks and other risky assets. As a result, the stock market may decline and bond yields may rise.
The GSCPI can also have a direct impact on the prices of commodities and other assets.
For example, when supply chain disruptions disrupt the flow of oil, oil prices may rise. This can lead to higher inflation and lower economic growth.
The future of the GSCPI
The GSCPI is a relatively new index, but it has quickly become an important tool for monitoring the health of global supply chains.
As global supply chains become more complex and interconnected, the GSCPI is likely to become even more important in the future.
The Federal Reserve Bank of New York is continuing to develop the GSCPI and make it more accurate and timely. The central bank is also working to expand the range of data that is used to calculate the index.