Our Q2 Index of Global Health shows inflation is more than a passing phase
By Christian Lanng, Founder and CEO, Tradeshift
Data from Tradeshift’s Q1 Index showed the steepest decline in quarterly activity since the beginning of the pandemic. In Q2 we saw more evidence of a looming recession, with global transaction volumes dropping by a further 6 points against our forecast range.
What’s striking about this quarter’s Index is the near-uniform pattern of declining transaction volumes across most of the world’s largest economies. Supply chain activity in the Eurozone and the US fell for the second quarter in a row, dropping by 5 and 4 points respectively. Activity in the UK also slid a further five points against the forecast range.
The bad news doesn’t end there.
Order volumes on Tradeshift’s platform fell by a further 6 points in Q2 against expectation, while invoice volumes dropped by 7 points, the steepest decline in quarterly invoice traffic we have seen in over a year. The figures suggest that the global economy is in for a rough ride over the months to come.
In ordinary times, this sustained decline in global activity would be the biggest economic story of the day. But it’s overshadowed by the specter of inflation, with rates hitting levels not seen in some economies for decades. Analysis of pricing volatility on the Tradeshift platform indicates that the average value of an invoice in 2022 is tracking 11% higher than last year’s average.
The current bout of inflation has several causes, a number of them linked to the pandemic.
Supply-chain disruptions have persisted across the global economy. Covid-19 cases in China and the imposition of lockdown restrictions continues to cause problems. Our data shows supply chain activity across the region sank a further 7 points below the expected range in Q2. Russia’s invasion of Ukraine is adding further pressure, especially to energy and food prices.
Some of the current challenges facing supply chains are transitory. It would be wrong however to ignore the structural changes in the world economy that could mean inflation remains a recurring problem.
The link between labor shortages and wage inflation is a good example. The 1980s ushered in a golden period for cheap labor as Eastern Europe and China opened up to international markets and Baby Boomers pursued their careers. This labor influx kept inflation low and removed much of the incentive for businesses to invest in automation, remaining wedded to labor-intensive manual processes, many of which remain a feature of the workplace today.
That cycle is ending, with an aging workforce and a younger generation asking harder questions about the type of work they want to do. Businesses are examining choke points in their supply chain and realizing that chucking more bodies at these problems is no longer an option.
According to one recent study, 78% of executives are planning to invest in automation to mitigate the impact of future labor shortages. Long viewed primarily as a way to reduce overheads, automation is fast becoming a key component of long-term risk management and resilience planning across global supply chains.
