Towards the end of 2021, supply chains began to heal from the initial turbulence of the pandemic before the omicron variant swept the globe, reigniting many of the pressures that have led to slowdowns, including factory closures and difficulty hiring new staff.
“Bottlenecks and broader disruptions dominated global supply chains [through the back half of last year], with significant implications for manufacturing activity levels and goods price inflation,” Mr Segura-Cayuela said.
“The timing of their unwinding is hence crucial for activity and price pressure normalisation.”
The New York branch of the Federal Reserve has created its own supply chain pressure index, which softened slightly in December, underscoring the growing sense of easing stress.
In January, the Fed’s monthly review of economic data, known as the “beige book”, has also employed fewer words that describe shortages, according to an analysis from Bank of America, further supporting the trend.
While the US begins to indicate an easing of supply chain pressures, the stress in Europe “appears to be peaking, but there is no sign of a clear turnaround yet,” Mr Segura-Cayuela said.
Part of the reason Europe faces ongoing pain is because of high energy costs, given “energy-related disruptions to supply remained high at the end of last year, keeping the supply disruption proxy very close to the 2021 peaks,” he said.
“But market prices for energy have moved lower since December, especially Euro area natural gas and wholesale electricity,” which Bank of America believes will help ease supply chain pressures.
“Given the relatively fast pass-through of market prices to corporate sector energy bills, we are somewhat hopeful that Euro area bottleneck signals will follow the US soon.”
Fund managers, analysts and economists have tightly focused on supply chains through the pandemic given the flow-on effects for the global economy, inflation and the outlook for interest rates.
The Fed is anticipated to increase interest rates for the first time in March, with a further two or three increases this year, according to consensus forecasts from Wall Street economists, including Bank of America, which anticipates four 25 basis point increases in 2022.
Jamie Dimon, chief executive of JP Morgan, warned last week the Fed could raise rates up to six or seven times this year to temper rising consumer prices, a pace akin to the central bank’s actions four decades ago under Paul Volcker.
However, a tightening labour market that could squeeze the US unemployment rate closer to 3 per cent, driving wages and inflation higher, “creates the risk that the Fed will ultimately raise rates by more than we currently expect,” according to Stephen Juneau, an economist for Bank of America.
“In other words, we may start to see the Fed begin to take the fight to inflation.”
