Global supply chain stress is escalating rapidly, reaching levels not seen since the early pandemic, and driving logistics costs to a near decade high. This surge, partly fueled by disruptions in the Hormuz chokepoint and anticipated shortages linked to the conflict with Iran, is intensifying inflation fears. In the US, services sector activity saw an uptick in May, but businesses are grappling with rising input prices and some have implemented hiring freezes. Canada's Ivey PMI also rose, signaling increased inflation pressures, while global goods trade shows signs of slowing.
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Key Numbers
54.5US ISM services PMI in May
58.2Canada Ivey PMI in May
57.7Canada Ivey PMI in April
78.0Canada adjusted prices index in May
Who's Involved
Federal Reserve
US central bank facing challenges with supply-driven inflation
ISM
Institute for Supply Management, which produces the US services PMI
Ivey Business School
Publisher of the Canadian Purchasing Managers Index (PMI)
World Trade Organization (WTO)
International body reporting on global trade trends
Key facts
Supply chain stress is rising at its fastest pace since the early pandemic.
Logistics costs have reached their highest levels in nearly a decade.
Disruptions are occurring around the Hormuz chokepoint.
US services sector activity increased in May.
The ISM services PMI in the US rose to 54.5 in May.
Businesses are rebuilding inventories due to anticipated shortages and higher prices.
Some US companies have implemented hiring freezes.
Canada's Ivey PMI increased to 58.2 in May.
Canada's Ivey PMI reached its highest level since September.
Canada's adjusted prices index rose to 78.0 in May.
The World Trade Organization (WTO) indicates global goods trade is slowing.
Global supply chain stress is escalating at its fastest pace since the early stages of the pandemic, pushing logistics costs to their highest levels in nearly a decade. These disruptions, particularly those occurring around the Hormuz chokepoint, present a significant challenge for the Federal Reserve as it attempts to combat supply-driven inflation. The situation is compounded by anticipated shortages and higher prices linked to the ongoing conflict with Iran.
In the United States, services sector activity showed an increase in May, with the ISM services PMI rising to 54.5, surpassing expectations. Businesses have been rebuilding inventories in anticipation of potential shortages and rising prices. However, this increased activity comes with heightened price pressures, prompting some companies to implement hiring freezes.
Canada's economic indicators also reflect these trends. The Ivey Purchasing Managers Index (PMI) for Canada rose to 58.2 in May, an improvement from 57.7 in April and the highest point since September. The adjusted prices index within Canada's PMI also climbed to 78.0, indicating escalating inflation pressures. Despite these price concerns, the employment gauge within the Ivey PMI saw a slight decrease.
Meanwhile, the World Trade Organization (WTO) has reported that global trade in goods is beginning to slow down. This observation suggests a potential shift in broader international commerce trends, adding another layer of complexity to the global economic outlook.
↳ Why This Matters
Global supply chain stress is escalating at its fastest pace since the early stages of the pandemic, pushing logistics costs to their highest levels in nearly a decade. These disruptions, particularly those occurring around the Hormuz chokepoint, present a significant challenge for the Federal Reserve as it attempts to combat supply-driven inflation. The situation is compounded by anticipated shortages and higher prices linked to the ongoing conflict with Iran.
Frequently asked questions
Ongoing disruptions around the Hormuz chokepoint and the resulting energy supply shock are cited as primary causes.
Input, freight, and other logistics costs are increasing, with transportation costs reaching their highest level in nearly 10 years and since March 2022.
The elevated costs risk leading to significant supply-driven inflation, which is harder for the Federal Reserve to combat than demand-driven inflation.
Respondents to the Logistics Managers' Index forecast aggregate logistics costs will increase by 253.6 over the next 12 months.
What Happens Next
01The Trump administration is working to resolve issues in the Hormuz chokepoint.
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