Global Supply Chain Disruptions: Challenges for Inflation and Monetary Policy in Sub-Saharan Africa

GlobalSupplyChainDisruptions:ChallengesforInflationandMonetaryPolicyinSub-SaharanAfrica ZoAndriantomanga,MarijnA.Bolhuis,ShushanikHakobyanWP/23/39 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate. TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. 2023 FEB ©2022InternationalMonetaryFundWP/23/39 IMFWorkingPaper AfricanDepartment GlobalSupplyChainDisruptions:ChallengesforInflationandMonetaryPolicyinSub-SaharanAfricaPreparedbyZoAndriantomanga,MarijnA.Bolhuis,ShushanikHakobyan* AuthorizedfordistributionbyLucEyraud February2022 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. ABSTRACT: TheCovid-19pandemichasledtoalargedisruptionofglobalsupplychains.Thispaperstudiestheimplicationsofsupplychaindisruptionsforinflationandmonetarypolicyinsub-SaharanAfrica.Increasesinsupplychainpressureshavehadasizeableimpactonheadline,food,andtradableinflationforapanelof29sub-SaharanAfricancountriesfrom2000to2022.Ourfindingssuggestthatcentralbankscanstabilizeinflationandoutputmoreefficientlybymonitoringglobalsupplychainsandadjustingthemonetarypolicystancebeforethedisruptionshavefullypassedthroughintoallinflationcomponents.Thegainsfrommonitoringsupplychaindisruptionsareparticularlylargeforopeneconomieswhichtendtoexperienceoutsizedsecond-roundeffectsonthepricesofnon-tradablegoodsandservices. JELClassificationNumbers: E31,E37,E52,F41,F44,Q43 Keywords: Inflation;globalsupplychains;sub-SaharanAfrica;shippingcosts;monetarypolicy;coreinflation;foodprices;oilprice Author’sE-MailAddress: andrian2@uwm.edu,mbolhuis@imf.org,shakobyan@imf.org ZoAndriantomanga UniversityofWisconsin-Milwaukee MarijnA.BolhuisInternationalMonetaryFund ShushanikHakobyanInternationalMonetaryFund *TheauthorswouldliketothankAqibAslam,LucEyraud,PapaN’Diaye,SergiiMeleshchuk,RobertZymek,andseminarparticipantsattheInternationalMonetaryFundforusefulcommentsandsuggestions.WethankSamsonM’bouekeandSeungMoChoifortheirhelpwithcollectingtheinflationdata. WORKINGPAPERS GlobalSupplyChainDisruptions:ChallengesforInflationandMonetaryPolicyinSub-SaharanAfrica PreparedbyZoAndriantomanga,MarijnA.Bolhuis,ShushanikHakobyan1 1TheauthorswouldliketothankAqibAslam,LucEyraud,PapaN’Diaye,SergiiMeleshchuk,RobertZymek,andseminarparticipantsattheInternationalMonetaryFundforusefulcommentsandsuggestions.WethankSamsonM’bouekeandSeungMoChoifortheirhelpwithcollectingtheinflationdata. Content 1.Introduction3 2.Globalsupplychainpressuresandinflationinsub-SaharanAfrica7 3.Data10 4.Impactofsupplychainpressuresoninflation11 4.1Localprojectionsmethodology11 4.2Results12 4.3Robustnesschecks14 5.Contributionsofsupplychainpressurestothesurgeininflation19 6.Implicationsformonetarypolicy22 7.Conclusions25 References26 Appendix28 AnnexI.Data30 AnnexII.StructuralModel32 FIGURES Figure1.Globalsupplychainpressuresandshippingcosts8 Figure2.Medianinflationinsub-SaharanAfrica9 Figure3.ImpactofaonestandarddeviationshockofGSCPI,oilandfoodpricesonmeasuresofinflation17 Figure4.Robustnesschecks18 Figure5.ContributionsofGSCPIshockstoinflation(y-o-ypercentchange)21 Figure6.CentralBankobjectivefunction24 TABLES Table1.Summarystatistics10 Table2.Localprojectionestimates16 APPENDICES AppendixFigure1.Contributionofglobalsupplyshockstoinflation28 AppendixFigure2.Residuals29 AppendixFigure3.WeightofCPIcomponents31 AppendixFigure4.Stylizedeconomyresponsestosupplychainshock(backward-lookingcentralbank)37 AppendixTable1.Economies30 AppendixTable2.Datasources30 1.Introduction TheCovid-19pandemichascausedmajordisruptionstoglobalsupplychains,hamperingtradeingoodsbetweencountries.Duringthefirstphaseofthepandemic,factoryshutdownsandmobilityrestrictionsdisruptedthelogisticsofmanufacturingfirms.Ascountriesopenedupandtheincreaseddemandforgoodsbegantooutstripsupply,portcongestionsraisedshippingcosts,puttingadditionalpressureonglobalsupplychains.1 Anattempttodefinesupplychaindisruptionswouldbeabusiness’inabilitytoreceive,produce,ship,andselltheirproducts.Supplychaindisruptionsarehigh-dimensionalinnature.Nonetheless,twodimensionsofsupplychaindisruptionsstandout:disruptionsinmanufacturingproductionandhighertransportationcosts.AnewlydevelopedindicatorbytheFederalReserveBankofNewYork,theGlobalSupplyChainIndex(GSCPI),capturesboththesedimensionsbycombiningseveralcross-bordertransportationcostindicatorsandglobalmanufacturingdata.TheGSCPIsuggeststhatthedisruptionsin2021and2022werethreetofourstandarddeviationsabovethehistoricalaverage. Thevolatilityofsupplychainsandtheprospectthatthesedisruptionsmayremainelevatedforasustainedperiodposeasignificantchallengeformonetarypolicymakers.Thereisgrowingevidencethatsupplychaindisruptionshavecontributedtotherecentincreaseinglobalinflation(e.g.,Benignoetal2022;LaBelleandSanta