Market Overview – January 2023

The year 2022 · 10 January 2023

In 2022, the world economy suffered two inflationary shocks. First, the consumer boom triggered by the lifting of pandemic-driven lockdowns in Europe and the US, combined with fiscal stimulus programs, generated a demand shock. Demand far exceeded supply, causing prices to rise and disrupting most supply chains, driving inflation. Second, Russia's invasion of Ukraine generated a second inflationary shock: a supply shock. Indeed, this war has caused energy prices to soar, yielding an overall price rise. Again, the developed countries have spent a lot to protect households and businesses from this increase. At the same time, the only weapon available to central bankers to fight against this explosion of inflation was to raise interest rates. If this tool works well to fight demand-generated inflation, its effectiveness is questionable for supply-generated inflation. This partially explains why the rate hike cycle, which is not yet over, was the fastest and most robust in US history. 

Market Overview - January Survol des marchés - Janvier