War, ceasefires and the effect on inflation
War can push up prices fast, while ceasefires often calm them without fixing everything. In this blog post, I want to look at the effect on inflation, from energy prices and supply chains to wages, the cost of living, and what happens when markets start guessing again ... The effect on inflation of war and ceasefires is a crucial aspect to consider in economic analysis When conflict threatens shipping lanes, pipelines or power plants, businesses face higher costs almost immediately, and those costs are rarely absorbed for long. They are passed on quickly, which is why households feel the cost of living rising even before headline inflation fully catches up. The mechanism is not mysterious!One of the biggest causes of inflation is supply chain disruption, and war is an expert at creating exactly that. Oil, gas and fertiliser become more expensive to transport, insurers raise premiums, and retailers pay more to get goods into shops. Even countries far from the battlefield can be affected because modern trade is interconnected and energy prices do not respect borders.Ceasefires usually help by removing the most immediate fear premium from markets. Traders relax, shipping routes reopen, and energy prices cool. That said, the effect on inflation is not always fully reversed, as companies may have already locked in higher contracts, slowly repaired supply chains, or kept prices elevated to rebuild margins. Peace can certainly cool the flames, but it | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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