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Supply Chain
Global supply chain difficulties were a prominent aspect in the inflation debate in 2021, and this is anticipated to continue in 2022. Omicron has obviously thrown a significant curveball in attempting to estimate how things will play out in 12022, especially with China continuing to their ‘zero covid’ approach to pandemic management. The lockdown in Xi’an is a prime example, and if the scenario spreads, industrial capacity would suffer as well as possible port closures.
Other Asian nations that have taken a more cautious approach may be less likely to open up and see restrictive measures remain in place for a longer period of time, especially as existing vaccines do not inspire much confidence in dealing with omicron.
The major difficulty with this is that the worldwide chip shortage is expected to continue, putting pressure on the semiconductor industry and other associated industries.
As a result, don’t anticipate the increased input, shipping, and transportation expenses to go away very soon. As a result, inflationary pressures will remain much beyond the levels desired by major central banks.
As much as major central banks want inflation to return to 2%, there is a critical distinction to be noted between inflation peaking before relaxing somewhat and inflation dropping all the way back to 2%.
If anything, 2022 will be characterised by the former rather than the latter (likely after 1H 2022). Given such a situation, authorities would be under even more pressure to tighten more, even if monetary policy isn’t the greatest way to cope with the pandemic’s inflationary rise.
China
China reports 206 new COVID-19 cases for December 25, up from 140 the day before. This 206 figure surpasses the previous high of 143 in August. The majority of these new cases have been reported in Shaanxi Province, which is located in north-central/western China. The city of Xi’an (the province’s main metropolitan region) is the hotspot and is now under lockdown. Lockdowns in China will impede the country’s economic recovery and endanger global supply lines.
USA
On Saturday, approximately 900 flights in the United States were cancelled due to crew shortages caused by the large increase of COVID-19 Omicron infections. Merry Christmas, however, it may be a bit more difficult for those who have had their plans upset. The spread of the new version is having a detrimental influence on more than just one sector of the economy, and it is not only affecting the United States and its economy. Harsh lockdowns are only a hair’s breadth away in China, for example, as the variation spreads there as well, which is not good for the country’s economy or global supply networks.