A key feature in the inflation debate in 2021 has been global supply chain issues, and that will likely be the case as well as we get into 2022. The big question though, is how much longer will that drag on for?
Omicron has certainly thrown a major curveball in trying to forecast how things will play out in 1H 2022, especially with China sticking with their 'zero covid' approach in managing the pandemic. The case in point being the lockdown in Xi'an and if the situation becomes more widespread, one can expect a hit to production capacity and possibly port closures.
Other Asian countries who have also adopted more cautious approaches will be less likely to open up and see restrictive measures persist for longer, especially when existing vaccines do not exude much confidence in dealing with omicron.
The big issue with that is that the global chip shortage is likely to drag on and that will continue to hit the semiconductor industry and other related sectors.
As such, don't expect the elevated input, shipping, and transportation costs to resolve themselves any time soon.
In turn, that will keep inflation pressures well above levels that major central banks desire.
As much as major central banks want to see inflation return to 2%, there is a key distinction that must be made on inflation peaking before easing slightly and inflation falling all the way back down to 2%.
If anything else, 2022 will feature the former rather than latter (likely after 1H 2022). Given such a scenario, that will continue to pressure policymakers to tighten further even if monetary policy isn't quite the best solution in dealing with the inflation surge from the pandemic.
