Lagarde says supply-chain disruption could fuel inflation again

Supply-chain disruptions are among the risks focusing European Central Bank President Christine Lagarde as she ponders the dangers that inflation could resurge.

The things “I’m watching carefully” are “wage bargaining, profit margins, energy prices, and — hopefully not, but — the coming back of supply bottlenecks,” she told Francine Lacqua at an event at Bloomberg House in Davos on Wednesday. “Those are four key components, which could have a serious impact on the work that we’re doing against inflation.”

Other ECB policymakers including Robert Holzmann have also cited the situation in the Red Sea as a possible threat to consumer prices.

Policymakers have reason to be wary. Disruptions to supply chains that began during the pandemic were partly behind an initial bout of inflation that occurred before energy prices spiked in the wake of the Russian invasion of Ukraine.  

Global trade faces a major challenge in the Red Sea, where Iran-backed Houthi rebels have been escalating attacks on commercial ships for the last months. The West is attempting to deter further action while averting a wider Mideast conflict in a region already on edge due to the Israel-Hamas war.