Global inflation will continue to rise as the broken supply chain continues

BENGALURU – The global trend of high inflation is not over yet and aggressive monetary policy tightening will reduce the price pressure to a mandatory level as broken supply chains are unlikely to be repaired any time soon. Reuters poll Showed

In most countries, inflation has reached multi-year highs, due to a return to economic activity and further pressure from disruptive supply chain disruptions.

While economists had expected inflation to moderate this year with signs of a supply-side easing, Russia’s invasion of Ukraine and the recent lockdown were prompted by a resurgence. Coronavirus Disease 2019 (COVID-19) In some parts of China, lawsuits, a major manufacturer, have dashed much of that optimism.

Analysis of global inflation data and the New York Federal Reserve’s Global Supply Chain Pressure Index (GSCPI), which measures supply distortion, shows that before the epidemic, especially in the UK, there is a relationship between supply chain disruption and inflation. Regions and the United States.

But there is a significant gap: while the GSCPI peaked in Q4 2021, inflation was still months away from the peak.

This poses an even bigger challenge for economists who predict inflation and whose forecasts continue to rise.

Wells Fargo International Economist Brendan McKenna said: “I do not think that supply chain disruptions are fully reflected in some of the inflation forecasts and that is probably why we expect the forecasts to be even higher in the coming months.”

“I still think we need to catch up. The banks and even the central banks have not really fully realized the supply chain disruption we have seen in the past year and may continue to see this year, in part because of the Russian-Ukrainian crisis. ”

The 46 economies surveyed for inflation this year now have an average of 3.9 percentage points higher than at the end of 2020, the first time that inflation was forecast for 2022.

In addition to the median, the ranges have also been upward.

For 2023, the forecast has increased by an average of 1.1 percentage points since the beginning of 2021. Further growth is expected in line with last year’s forecast.

“People are slow to see these things because they don’t necessarily look upstream at production sources, or they’re not responsible for transit delays,” said Willie Shih, a professor of management practice at Harvard Business School.

“There’s a time lag in all these supply chains depending on how far upstream you’re going, but you won’t realize it after many weeks or sometimes a few months.”

Disruptions in the supply chain and their impact on inflation remain largely out of the central bank’s control, yet many have begun to withdraw their ultra-loose monetary policy to curb rising inflation.

So far, estimates show that inflation in 29 of the 39 economies surveyed with the central bank’s targets will be above 16 this year and 16 next year.

To complicate matters further, policymakers must tackle sticky inflation with a high risk of a significant economic downturn – in some cases a recession – lingering in the background.

“Inflation tends to be a slow killer …” said Alvin D. Groot, head of macro strategy at RABOBANK. It’s hard for me to take, it’s impossible.

“Inflation will no longer be as structurally low as we have seen since the global financial crisis and the last 10 years.–15 years of slow inflation was the central bank’s goal; Those times may be behind us. “- Reuters