The Return Of Friction

Nelson Alves3.84K FollowersFollow5ShareSavePlay(8min)CommentsSummaryThe debate over whether a war-driven oil spike counts as "true inflation” or merely a temporary supply shock is too narrow to be useful.What matters is how far the shock travels once it hits a system that had grown accustomed to cheap energy, cheap money, and easy assumptions about liquidity.Markets price transmission. A supply shock may not qualify as inflation in the strict monetary sense, but it can still reprice inflation expectations, alter central bank reaction functions, compress real incomes, tighten financial conditions, and weaken growth before demand has any chance to adjust.The argument, then, should not be framed as inflation versus supply shock. The more relevant question is whether the shock changes the operating conditions of the economy. And in this case, it does.

Getty Images The market is asking the wrong question. The debate over whether a war-driven oil spike counts as “true inflation” or merely a temporary supply shock is too narrow to be useful. It is academically neat and strategically incomplete. What matters is notThis article was written byNelson Alves3.84K FollowersFollowEx-trading desk at tradfi bankHead of Investment Research at KRIMaster in Finance