Global central banks prep to tackle an old nemesis

conflict and disruptions to flows.IEA projects global oil supply to plunge by 8 mbpd in March. With that, an old nemesis of central banks may return: elevated inflation and muted economic growth. Every 10% rise in oil prices that persists for a year leads to 40 basis point growth in global headline inflation and a 0.1–0.2% decline in global output, estimates the IMF.Higher energy prices feed into transport and food costs, pressurizing household budgets.

For companies, production costs surge. Country-specific impacts would vary depending on twin deficits, forex reserves and import dependency.Asian economies, which were already grappling with the US tariff impact, are seen bearing a severe brunt. Asia is a large net energy importer, and a significant share of its oil, gas and fertilizer imports pass through the Strait of Hormuz.“Thailand, Korea and India appear the most vulnerable,” said Nomura Global Market Research report dated 11 March.

Rising energy costs are pushing up pipeline price pressure and inflation is likely to rise from current low levels, said Nomura. For now, it expects most Asian central banks to stay on hold, but the bar to hike is also high.Central banks will have to tread carefully. Cutting rates too soon could prompt capital outflows from emerging economies, hurting their currencies.

Aggressive tightening can hurt the already weak growth prospects.In developed world, Europe is highly dependent on oil and gas imports. Nomura expects the ECB to leave its deposit rate at 2% this year and next, but rising price pressures may necessitate an earlier rate rise.In contrast, net energy exporter US is seen as largely insulated. Nomura expects no rate cuts under chairman Jerome Powell and easing may resume in