Societe Generale economists Sam Cartwright and Michel Martinez examine renewed supply chain disruption risks for the euro area, with tensions in the Middle East adding to strains seen after Covid in 2020-21 and those linked to the war in Ukraine since 2022. The note seeks to quantify European supply pressure and its pass-through to prices, using an adaptation of the New York Fed’s Global Supply Chain Pressure Index (GSCPI) to build separate gauges for Europe and Asia and to assess how trade disruptions through the Strait of Hormuz affect each region.
Their framework suggests supply chain pressures eased over the summer but remain elevated, with firmer demand implying a continued inflation impulse into this year and next. Across scenario analysis, even if pressures keep subsiding in coming months, they project euro area non-energy industrial goods inflation to peak at 1.8% in 2H27 before returning towards normal levels.
Sustained Shipping Disruptions and Core Inflation Pressures
We must prepare for sustained pressure on European core goods as supply chain disruptions in key trade corridors like the Red Sea continue to linger. Although global container freight rates have dipped from their crisis peaks, the Drewry World Container Index still hovers well above historical averages at around $3,000 per 40ft container. We expect these persistent shipping bottlenecks to keep European import costs elevated, directly feeding into core inflation over the coming quarters.
Strategic Market Positioning Amid Inflation and ECB Policy
To capitalize on this outlook, we recommend that derivative traders increase exposure to Eurozone inflation-linked swaps, particularly in the one- to two-year tenors. Because non-energy industrial goods inflation is projected to peak at 1.8% in the second half of 2027, the market is currently underpricing medium-term core price pressures. Going long on these swaps offers a strong risk-reward profile as manufacturing input costs remain highly sticky.
We also suggest adjusting positions in Euro short-term rate (€STR) futures to reflect a slower-than-expected rate-cut path by the European Central Bank. Eurostat’s core inflation rate remains stubborn at 2.8%, which limits the central bank’s ability to aggressively ease monetary policy. Shorting near-term €STR futures or buying protective puts will shield portfolios against a hawkish ECB surprise in the coming weeks.
Lastly, this stubborn inflation backdrop supports a more resilient Euro against other major currencies. We favor buying out-of-the-money EUR/USD call options to capture any upward movement toward the 1.12 level. This play exploits the narrowing interest rate differential as the Federal Reserve pivots faster than its European counterpart.
