Merryn Somerset Webb

Why do I say that?

I suspect lots of people were repeating the Ukraine-Russia playbook

And this is not that.

This differs from that in two very fundamental and significant respects.

First, the scale of shock, at least so far, tempting for it in saying this, but the scale of shock so far is nothing like on the same scale.

That was a shock to the cost of living of north of 10% in the UK.

At current energy prices, we're talking a shock to the cost of living of 2% or 3%.

So much smaller shock.

What's more, that smaller shock to costs is breaking on an economy that's very different, and a labor market that's very different than back in 21, 22.

Back then, we had resurgent demand.

coming up against constricted supply post-COVID, the result of which was an obvious bottleneck.

And we had cost push pressures, much larger ones, alongside demand pull pressures, and the result was inflation.

This time, we do not have those frictions.

Demand is soggy.

The labor market is soggy.

Firms do not have pricing power.

Workers do not have pricing power.

The upwards impetus to inflation, therefore, will be significantly less unless the war is a forever war.

And as a result, I'd be surprised if the bank and the Fed were to raise rates this year if energy prices remain at or close to where they are right now.

This is a time for sitting gleefully on your hands and seeing how the world pans out.