RECENT geopolitical tensions and energy shocks have renewed global inflation risks, keeping growth subdued. Post-pandemic bottlenecks and transportation strains severely restricted output and raised material costs, Geopolitical conflicts, particularly in the Middle East, spiked oil and fuel prices significantly. Large government budget deficits and massive money supply expansion fueled excess demand. Headline inflation has slowed from its post-pandemic peak, but persistent government spending keeps global CPI around 3%, above pre-pandemic targets. Aggressive monetary policy tightening by global central banks has helped anchor expectations, though uncertainties remain. Lingering liquidity and cost pressures continue to support hard assets and equities while squeezing consumer purchasing power.

The early 2020s saw a series of unprecedented shocks in rapid succession, including the Covid-19 pandemic and the energy and security crises following Russia’s attack on Ukraine. These shocks triggered a sharp surge in prices. On the supply side, disruptions to global supply chains and massive increases and volatility in energy and commodity prices were major drivers. On the demand side, spending shifted from non-tradable services to tradable goods such as electronics. Demand was further supported by broad-based expansionary fiscal policies and loose monetary conditions. Firms passed higher costs on to consumers through increased prices, while consumer sentiment deteriorated amid persistently high inflation.

This article........

© Pakistan Observer