Friday, October 7, 2022

The Global Challenge

By on August 18, 2022

The global economy continues immersed in an environment of market volatility and uncertainty, driven by inflationary pressures and rising interest rates. Inflation is no longer supported by “too much money chasing a few goods.” Instead, supply-side factors such as persistent global supply chain pressures, insufficient OPEC+ and U.S. oil supply relative to demand, and climate change impacts on crop yields and food production have become preeminent factors in the inflation narrative.

Notwithstanding, recent economic indicators suggest that some of these pressures could subside in the coming months. For instance, the Global Supply Chain Pressure Index published by the Federal Reserve Bank of New York shows that supply chain pressure is subsiding but remains high relative to historical levels. In addition, the WTI oil price has steadily declined from $106.12 a barrel on July 19, 2022, to $93.52 a barrel on August 8, 2022, whereas maritime shipping costs have fallen from $16,024 per forty-foot equivalent unit (FEU) in March 2022 to $8,934 per FEU in June 2022.

In the U.S., recent data released by the Bureau of Labor Statistics show that the Consumer Price Index (CPI) and the Producer Price Index (PPI) rose at a slower pace for the first time after months of growth. During the 12-month period ending in July, consumer inflation rose 8.5 percent compared to 9.1 percent the prior month. Producer prices followed with an increase in prices moderating from 11.3 percent in June to 9.8 percent in July.

The moderate reduction in price pressure resulting from declining fuel prices reflects a gloomier global and U.S. economic outlook and not improvements in energy market fundamentals. On the other hand, in Puerto Rico, there are no updates on inflation but recent figures for June showed a new peak of 7.1 percent in inflation driven primarily by increases in food and fuel prices. If global energy prices keep falling, then price pressure in the local economy may subside in the short term.

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