Page 26 - CII Artha Magazine

barrels a day starting this Similarly, the Bank of England
INFLATION POSING month (November 2022) can CENTRAL BANKS (BoE) has also announced a
A MAJOR THREAT lead to oil prices reaching AGGRESSIVELY hike of 75 basis point in its A Strong Dollar Affecting all Major Currencies
TO ECONOMIES US$100 per barrel again after TIGHTENING KEY November 2022 meeting,
WORLD OVER falling to levels around US$80 POLICY RATES their biggest interest rate hike Currency January-October 2022 Global Financial Crisis Taper Tantrum
per barrel. TO TAME since 1989 in order to (December 2007 - June 2009) (May-November 2013)
MULTI-DECADAL combat the surging inflation
Inflation has emerged as a Higher oil prices will add to INFLATION LEVELS due to the sharp increase in Indian Rupee 11% 21% 14%
formidable challenge across the inflation worry that global energy prices. The bank
the globe. The global rise in central banks are fighting expects the country to be in
inflation to a 40-year high in currently. That is also likely to recession for a prolonged Indonesian Rupiah 8% 9% 22%
advanced economies, exacerbate an energy crisis in Central banks across the period.
including the US, UK amongst Europe which is largely globe are aggressively South Korean Won 19% 36% -4%
others, showcases that the dependent on Russian oil increasing their interest rates, Further, the BoE rate increase
countries overstimulated supplies. causing fears of overkill in is set to worsen a
their economies and financial markets. The latest cost-of-living crisis for Thai Baht 14% 1% 6%
generated excess aggregate There are additional upside rate increase mirrors millions of people in UK as
demand. risks to oil prices as well. The aggressive tightening by the rate hikes has led the Chinese Yuan 13% -6% -1%
United States and West are central banks worldwide as retail lenders to push up
Prices had already been high proposing a plan to impose a food prices and energy bills interest rates on their own
in the aftermath of the ceiling on Russian oil prices, soar. loans. Euro 13% 4% -4%
pandemic majorly due to the amid a warning from the
supply bottlenecks. Moreover, World Bank that any proposal The US Fed has raised the On the contrary, economies British Pound 17% 21% -7%
this level of unusual inflation will require active federal funds rate by 75 basis such as Japan and China are
can also be attributed to the participation from emerging points in each of its last four keeping their monetary
quantitative easing done by market nations in order to be monetary policies to control policies loose. China has kept Japanese Yen 28% -14% -1%
the major central banks in successful. The idea behind inflation. The aggressive rate its monetary policy relatively
2020 and 2021. the price cap is to keep hikes by the Fed have resulted loose this year to bolster an
Russian oil flowing to the in the US dollar strengthening economy hit by covid Note: Negative sign here indicates appreciation
Source: Varied National Sources
Further, the surge in the global market, just at lower against major currencies lockdowns and a worsening
prices of global commodities prices. Russia, however, has worldwide. property slump.
as a result of the threatened to stop deliveries
Russia-Ukraine war have to a country or companies is heading towards a global Similarly, export in other major
accentuated the inflationary that observe the cap. That Trajectory of Rate Hike by the Major Global Central Banks (%) GLOBAL TRADE recession. In US, the export economies like UK and the Outlook
pressures world over. could take more Russian oil 4.0 3.63 4.0 TO FURTHER growth has decelerated sharply Eurozone have also seen a
off the market and push oil 3.0 SLOWDOWN IN registering 22.2 per cent in Q2 decline to 17.6 per cent and The world is moving
The OPEC+ decision to cut prices higher. 2.0 2.00 2.63 3.65 2023 2022 to a contraction of 18 31.5 per cent in July-August towards a sharp slowdown
crude oil supply by 2 million 3.5 and is likely to enter a
1.0 per cent in July-August 2022. 2022 respectively.
recession, with all the
0.0 -0.10 Globally exports have started indicators pointing towards
Global Headline Inflation Inching up (y-o-y%) -1.0 to lose momentum from the Trajectory of Exports Across Major Global Economies (y-o-y%) a downside. Going forward,
Q3 2021 Q1 2022 Q2 2022 Q3 2022 Q3 2021 Q1 2022 Q2 2022 Q3 2022 Q3 2021 Q1 2022 Q2 2022 Q3 2022 Q3 2021 Q1 2022 Q2 2022 Q3 2022 Q3 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 (Oct) 3.0 second half of the year, as the the outcome of the war in
12.0 Q4 2022 (Oct-Nov) Q4 2022 (Oct) Q4 2022 (Oct-Nov) Q4 2022 (Oct) global economy has sustained 40.0 40 Ukraine and resultant
US Eurozone UK Japan China (rhs)
10.0 10.0 multiple shocks such as ripple trajectory of commodity
9.3 20.0 20
8.0 8.3 effects from the war and the prices along with supply
Source: Varied National Sources related food & energy crisis. As disruptions will drive the
6.0 0.0 0
5.3 per World Trade Organisation extent of policy actions
4.0 (WTO) latest report, the global -18.0 -17.6 required by the countries.
2.8 2.9 2.9 2.7 In a highly integrated financial have started facing sharp -20.0 -20
2.0 system, the aggressive actions depreciation pressures. merchandise trade volume is -31.5 -26.5 Further, the path followed by
0.8 -40.0 -34.6 -40
0.0 -0.2 of the US Federal Reserve As can be seen from the estimated to grow only by central banks for monetary
-2.0 have resulted in negative below table, even though the around 3.0 per cent in 2022 as Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2021 Q4 2021 Q1 2022 Q2 2022 tightening to control
Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 externalities through global Indian Rupee has weakened in all indicators point towards a Q3 2022 (Jul-Aug) Q3 2022 (Jul-Aug) Q3 2022 (Jul-Aug) Q3 2022 (Jul-Aug) Q3 2022 (Jul-Aug) inflation will determine how
deep the crisis will be.
downside.
the period from Jan-Oct 2022,
US UK Eurozone Japan China spill overs. As a result, the US
dollar has strengthened its extent of depreciation has US Eurozone UK (rhs) Japan (rhs) China
rapidly to a two-decade high. been relatively less as The latest data available has
Source: Varied National Sources Consequently, the currencies compared to currencies of already started to point Source: Varied National Sources
of other emerging markets other major developing towards a slowdown in
and other developed nations economies. external demand as the world

26 ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY 27
QUARTERLY JOURNAL OF ECONOMICS
QUARTERLY JOURNAL OF ECONOMICS
DECEMBER 2022 DECEMBER 2022