By Howard Schneider and Balazs Koranyi
WASHINGTON (Reuters) – Central banks who had hoped high inflation would ease as global supply chains improved got little relief until April, as new coronavirus lockdowns in China and the war in Ukraine lengthened delivery times and raised prices. costs, according to new analysis by the New York Federal Reserve.
A global supply chain pressure index released on Wednesday by the New York Fed rose in April after four months in which supply woes appeared to ease, a reversal that, if continued, will potentially result in more persistent inflation. , even as central banks move to control rising prices.
The April index, combining a slew of statistics on global transport costs, delivery times and other data, “suggests that the moderation we’ve seen in recent months has been partially reversed as China’s lockdown measures and geopolitical developments put pressure on it.” further lead to delivery times and transportation costs in China and the Eurozone,” wrote a team of economists at the New York Fed.
OUT OF CONTROL
The Fed and other major central banks have already started raising interest rates or are drawing up plans to raise them in an effort to contain inflation well above the 2% target, something that has become the norm for monetary policy in major economies. developed in the world.
The hope is to dampen demand for goods and services as higher interest rates discourage homebuys and other large acquisitions and, in doing so, “bring supply and demand together again,” said Fed Chair Jerome Powell, on Tuesday.
But officials are also hoping, as Powell said, to “give the supply side a chance to catch up and a chance for inflation to come down” on their own, as goods begin to flow more easily around the world.
The magnitude and speed with which this will happen, however, has become more uncertain and increasingly important to the pace of interest rate hikes that central banks may need to impose, as well as to the required final level of borrowing costs from way to contain inflation.
The more global supply remains constrained, the more rigid central banks may have to be in their efforts to contain demand, growth and, potentially, employment.
Over a longer period of time, the possibility of a more regionalized world economy, cut into smaller geopolitical zones, could mean an expensive and lengthy adjustment to a world of higher prices.
“There is a real possibility that globalization will be reversed to some extent,” Powell said. Even if local industries adapted over time, “it would be a very different world” from the one that produced around 30 years in an environment where prices have generally increased slowly.
China Beige Book, a data and analytics firm focused on the Asian country, said in a note last week that backlogs are likely to worsen and potentially cause the Chinese economy to retreat in the second quarter of the year, which could potentially cause US inflation will rise higher instead of peaking in the coming weeks.
The note highlighted that Chinese ports “are seeing near-historic levels of delays”. The company wrote that “if China’s supply chain delays cause a second wave of U.S. price increases in early summer (in the Northern Hemisphere), the Fed will be completely limited in terms of what it can do.”
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