The recent surge in global energy volatility and supply disruptions—exemplified by India’s current oil crisis and ongoing conflicts in Ukraine—proves that inflation is no longer a cyclical demand issue. It is a structural byproduct of a fragmenting global order. Central banks can no longer rely on pre-pandemic models to guide interest rate paths.
When vital shipping lanes are threatened and key commodity producers are locked in proxy wars, supply chains do not 'normalize.' They become permanently more expensive. Expecting inflation to magically settle at historical targets while the world de-globalizes is an exercise in academic stubbornness.
To preserve monetary credibility, policymakers must accept that the neutral interest rate has shifted permanently higher. Cutting rates prematurely to appease struggling markets will only ignite a secondary wave of structural inflation, devastating consumer purchasing power and locking in a stagflationary decade.