How Much Can GSCPI Improvements Help Reduce Inflation?

Akinci, Ozge; Benigno, Gianluca; Clark, Hunter L.; Cross-Bermingham, William; Nourbash, Ethan

Discussion Paper

How Much Can GSCPI Improvements Help Reduce Inflation?

Abstract: Inflationary pressures—their determinants and evolution—continue to dominate policy discussions. In this post, we provide a simple framework to analyze the determinants of different measures of inflation and use it to lay out a risk-scenario analysis. We find that global supply factors captured by the New York Fed’s Global Supply Chain Pressure Index (GSCPI) are strongly associated with inflationary developments measured by the producer price index (PPI) and by the c0nsumer price index (CPI). Under the assumption that the GSCPI falls back to its historical average over twelve months, our model would project a substantial easing of consumer price inflation over 2023 to below 4.0 percent. The normalization of the GSCPI would then be consistent with a return of inflation to levels consistent with a soft-landing scenario.

Keywords: inflation; Global Supply Chain Pressure Index (GSCPI); oil price;

JEL Classification: E31; E52; F0;