The chief UK economist at Credit Suisse has warned corporates to prepare for high inflation volatility as market factors keeping inflation low are now beginning to “reverse to some extent”.
Speaking at March’s CFO Executive Dialogue, Sonali Punhani explained the “one off shock” of inflation could soon become “more persistent” as higher energy and goods prices pass through to the domestic economy.
Commenting on the high inflation experienced in UK and global economies, she said the world is currently grappling with a “big supply problem happening globally” in different sectors causing the rate of inflation to increase.
When economies came out of lockdown and began to open back up again, there was a “mismatch” between supply and demand.
“There was a big demand for goods, but the supply of those goods was restrained because a lot of factories were shut in Asia and in other parts of the world where these things are produced,” she said.
As such, the country-specific pandemic restrictions have shown the vulnerabilities of global supply chains with many companies “left struggling” with higher prices as they seek to localise parts of their supply chain.
Moreover, with demand outstripping supply prices have risen significantly in various economies with some inflation rates reaching levels that haven’t been seen in the past 20 years, said Punhani.
“If there is a one-off shock of inflation and that’s being translated into a more persistent inflation, it leads to a bit of a spiral between prices and wages,” she said. “That would mean inflation is higher for longer, rather than just being a one off shot which then passes through and washes out.”
Multiple market factors, including rising energy prices and lower labour supply as a result of the pandemic, has meant macroeconomic stability has been “shaken” in the last few years and is being exacerbated by the Ukraine crisis.
Punhani advised corporates to prepare for central banks to pivot from being “very supportive” to taking away support “quite quickly”.
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