Euro area: Supply chain risks and core goods outlook – Societe Generale

Societe Generale economists Sam Cartwright and Michel Martinez analyze how renewed supply chain disruptions, including conflict in the Middle East, may affect Euro Area prices. Using an adaptation of the New York Fed’s Global Supply Chain Pressure Index for Europe and Asia, they highlight still-elevated pressures, firmer demand and a projected peak in Euro Area non-energy industrial goods inflation at 1.8% in 2H27.

Supply strains and inflation outlook

"Following the Covid pandemic in 2020-21 and the supply chain disruptions triggered by the war in Ukraine since 2022, the recent conflict in the Middle East has renewed concerns about the resilience of European supply chains."

"In this note, we try to quantify the degree of supply pressure in Europe and its impact on inflation."

"We adapt the New York Fed Global Supply Chain Pressure Index (GSCPI) to construct separate indices for Europe and Asia, revealing a distinct response to disruptions to trade flows through the Strait of Hormuz:"

"Supply chain pressures have been easing this summer, but they remain elevated and are likely to feed through to inflation this year and next."

"Under different forecast scenarios, even if supply pressures continue subsiding in the coming months, our euro area non-energy industrial goods inflation forecast peaks at 1.8% in 2H27 before normalizing."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)