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Geopolitical Inflation - The Culprit

The last three years have witnessed a continuous rise in inflation globally. With every year having a different reason. 2020-21 was the period of large-scale stimulus that resulted in demand going to unexpected levels. 2021-22 was the period where supplies could not cope with all the sustainable rising demand. 2022-23 is the period where past issues are resolved but the focal point becomes the geopolitical decisions.

From the start of 2022 when Russia - Ukraine conflict began the geopolitical decisions have been most divided in a long time. This has led to various sanctions on Russia that have resulted in elevated prices of energy and related products.

Another level of decisions has been related to creating the manufacturing of critical goods locally. This has resulted in various subsidies being introduced by major countries.

All these decisions are resulting in the most uneven trend in manufacturing throughout the world. The recent PMI release indicates that the only common trend is that new orders are falling throughout the world.

These variations will take time to resolve and till then inflation will remain at higher levels with upside risk. This would make central banks even more nervous as they would be forced to go beyond the worst-case scenario. And this might put financial stability into question.


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