Dom’s Quick Take: The NY Fed GSCPI and Core Goods Inflation Correlation Is Spurious!

The New York Fed has just published its Global Supply Chain Pressure Index (GSCPI) for February. The index fell a lot in February and is now below the historical average (Chart 1).  The decrease was broad-based with the largest negative contribution from European delivery times.   

The index captures the recent decline in shipping costs and improvements in supply chain-related parts of PMIs in key manufacturing countries. Basically, shipping costs and PMI supply constraints indices are returning to pre-pandemic levels (Charts 2 and 3).

Simultaneously, the correlation between shipping costs and import prices is weak (Chart 4).  Therefore, it is unsurprising that, when we break down core goods inflation between used car and other goods, the GSCPI turns out much more correlated with used cars than with other core goods prices (Chart 1). 

Because I cannot think of a sensible causation between global supply chain pressures and used care prices, I suspect the correlation between GSCPI and core goods inflation is spurious.

Regarding used car prices, for now I stick to my guns: used car prices are likely to follow the Manheim car auction up – if not next week, very likely within the next few months.

Dominique Dwor-Frecaut is a macro strategist based in Southern California. She has worked on EM and DMs at hedge funds, on the sell side, the NY Fed , the IMF and the World Bank. She publishes the blog Macro Sis that discusses the drivers of macro returns.

Photo Credit: depositphotos.com

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