Here's how geopolitical conflicts have their impact on inflation, employment, food prices and other stresses on the global financial system.
Here’s how geopolitical conflicts have their impact on inflation, employment, food prices and other stresses on the global financial system.Talk show pontifications notwithstanding, the trajectory of the world’s two most serious geopolitical conflicts — Ukraine and the Middle East — is unpredictable. In the Israel-Hamas war, the potential for serious escalation is not trivial. These and other uncertainties are aggravating known stresses on the global financial system.
Input costs show no signs of easing. While volatile, energy prices remain under upward pressure due to production cuts by Saudi Arabia and Russia to keep prices at levels which meet their revenue targets. Fuel hungry military activities will influence demand. The threat of an 1974-like oil embargo should not be discounted.
Housing also is affected. With affordability at record lows, strong housing markets will feed inflation via real or imputed rents. Rising insurance costs due to increased extreme weather risks will flow into rising prices.Inflation also is found in the tit-for-tat China-U.S. trade restrictions on technology and rare earths, which impacts supply chains. Relocating production facilities to enhance U.S.
Current interest rates reflect a long overdue normalisation. Central banks also need scope to cut rates in an emergency. Barring a severe downturn or financial crisis, rates could remain at current levels for a prolonged period. In addition, problems in commercial real estate and funds unable to navigate choppy trading conditions may foretell troubles ahead.
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