Falling US supply chain stress augurs for lower inflation

Supply chain stress continued to ease in February despite stronger-than-expected economic growth. Supply chains could return to pre-pandemic conditions by the end of this year if our tracker’s current trajectory is maintained, as we anticipate.

What you will learn:

• The US economy is set to suffer a mild recession later this year as the Fed is not finished hiking interest rates and turmoil in the banking sector highlights vulnerabilities in parts of the economy. Demand from overseas, including China’s reopening, won’t add much pressure on supply chains.
• Continued weakness in transportation and a tempering of the red-hot labor market pushed our supply chain stress tracker to its lowest level since April 2021. Prices continue to be the stickiest of our tracker’s five components. Inflation is slowing, but producer and consumer prices remain stubbornly elevated. Goods disinflation is not fast enough to offset sticky services prices. Risks are weighted toward inflation being higher than previously anticipated.