The recent commodity price surge, in the wake of Russia’s invasion of Ukraine, has exacerbated already elevated inflationary pressures.
Global inflation has risen over the past year from less than 2% to over 6%, the highest level since 2008.
Until recently, central banks considered the current rise in inflation to be temporary, due to supply bottlenecks, and demand shifts, all related to the pandemic, and expected these transitory factors to diminish over the course of the year.
However, the Ukraine crisis and the resulting economic disruptions could fundamentally overhaul this assessment. Russia supplies around 10% of the world’s energy, including 17% of its natural gas and 12% of its oil. The jump in oil and gas prices will add to industry costs and reduce consumer real incomes.
Fitch Ratings has cut its GDP growth forecast for 2022:
➡️ World 3.5%
➡️ Eurozone 3.0%
➡️ US 3.5%.
💢 Fitch has revised down world growth for 2023 to 2.8%.
Inflation challenges and supply shocks could take a much heavier toll on world GDP growth if they prompt much more abrupt Fed tightening, push oil prices to $150/barrel for a sustained period and were associated with widespread energy rationing in Europe.