The Year 2022 – A period that started with the optimism of consolidation of the post-COVID recovery, albeit slowly, but eventually went southwards with the multifaceted impact of the Russia-Ukraine conflict and tighter monetary conditions. Not only did the Russia-Ukraine conflict disrupt the relatively smooth functioning of the global economy, but it also made global central banks hasten switches to monetary policy tightening as inflationary pressures rose to levels not seen in decades. To put it in a proper context, we acknowledge that global inflation rates were on the rise before Russia invaded Ukraine on 24 February, reflecting the (1) post-pandemic supply chain disruptions, (2) shortages of chips and semi-conductors, and (3) increased demand that accompanied the reopening of world economies.
However, just before the world economies started feeling the impact of the war, global PMI surveys reflected that the supply chain delays had started easing in the US, UK, and Euro Area, implying that inflationary pressures may moderate by H2-22 amid the favourable base effects from the prior year. However, the Russia-Ukraine conflict shattered the hopes of moderation as the conflict introduced new risks to the inflationary pressures, worsening the supply chain constraints. Moreover, food and energy prices also spiked, given the contribution of both countries to global supplies. Therefore, consumer prices spiralled across the developed and developing economies to the extent that some countries introduced export bans to limit price shocks in their respective domestic economies. Consequently, the preceding induced global central banks to aggressively tighten monetary policies faster than initially expected as inflationary pressures rose.