Global Supply Chain Disruptions, Commodity Price Shocks and Inflation in Japan

Abstract

In recent years, the concurrent occurrences of the COVID-19 pandemic and the Russian invasion of Ukraine have led to global disruptions in supply chains and a surge in commodity prices. Major advanced economies have experienced an increase in inflation rates and a decline in economic activity. Against this economic backdrop, this paper aims to address the strained condition of supply chains by employing the Global Supply Chain Pressure Index (GSCPI) alongside commodity price indices. Furthermore, it seeks to examine how fluctuations in these variables affect Japan’s macroeconomic landscape through local projection and structural Vector Autoregression (VAR). In the local projection analysis, it has been observed that the strain on supply chains induces sustained increases in consumer and producer prices, further contributing to long-term declines in production. Within the structural VAR model framework, the identification of structural shocks is conducted through sign restrictions, affirming the significance of supply chain shocks and energy and food price shocks as crucial factors contributing to recent price increases. This confirmation is supported by variance decomposition and historical decomposition analyses.