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Will supply bottlenecks continue until 2022?

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A key part of the inflation debate in 2021 has been global supply chain issues, and that will likely be the case as we move into 2022. The big question though is how long will that go? will it still last?

Omicron has certainly thrown a major curve ball when trying to predict how things will play out in 1H 2022, especially with China sticking to its “zero covid” approach to dealing with the pandemic. The case in point being the Xi’an lockdown and if the situation generalizes, we can expect an impact on production capacity and possibly port closures.

Other Asian countries that have also taken more cautious approaches will be less likely to open up and see restrictive measures persist for longer, especially when existing vaccines do not give much confidence in the treatment of omicron.

The big problem with this is that the global chip shortage is likely to drag on and it will continue to hit the semiconductor industry and other related industries.

As such, don’t expect the high costs of entry, shipping, and transportation to resolve anytime soon.

In turn, this will keep inflationary pressures well above the levels desired by major central banks.

As much as the big central banks want to see inflation return to 2%, there is a key distinction to be made between peaking inflation before easing slightly and inflation falling back to 2%.

If anything else, 2022 will feature the first rather than the last (likely after 1H 2022). Given such a scenario, it will continue to put pressure on policymakers to tighten further even if monetary policy is not quite the best solution to deal with the spike in inflation due to the pandemic. .

Will supply bottlenecks continue until 2022?

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