Inflation was already running well above central banks’ targets as we entered the year. The war has put additional pressure on prices and supply chains and this could have repercussions not just on oil, but on other commodities as well. Furthermore, given these (intermediate) commodities are used in the production of other finished products, we are likely to witness more broad-based inflation, particularly in Europe, the region closest to the crisis.
The supply/demand mismatch in natural gas was already acute in Asia Pacific and Europe before the war. Given Russia’s role in supply, the geopolitical ramifications of the war are tremendous, including higher prices and a potential threat to supply, both of which feed into the inflation narrative. Gas storage levels in Europe are only enough to cover near-term demand and a more coordinated European effort is needed to wean the region off Russian dependence in the long term.
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