Neutral better than reverse.

The war in Ukraine has resulted in higher commodity prices due to supply disruptions and this together with excessive monetary and fiscal stimulus in advanced economies during the pandemic "has worsened the stagflationary conditions that emerged during the pandemic", wrote Profs Nouriel Roubini & Brunello Rosa. Tighter monetary policy will cut growth and there is a risk of "a financial crash in debt and equity markets". Increased fiscal spending to stimulate growth will risk higher inflation and people's anger and continued sanctions on Russia will perpetuate supply disruptions. "For decades, the free flow of trade across much of the world allowed the richest nations to enjoy easy access to low-priced goods and supplies. It meant solid economies and stable markets. And for households and businesses, especially in the United States and Europe, it meant an entire generation of ultra-low inflation," ET. Companies in the US and Europe will try to bring production back to their home countries. But, where will they find workers? "Total nonfarm payroll employment rose by 431,000 in March, and the unemployment rate declined to 3.6 percent, the US Bureau of Labor Statistics reported today." This could be considered below the Non-Accelerating Inflation Rate of Unemployment (NAIRU), wikipedia, which is when the rate of unemployment falls to a level causing wages to rise. Consumer price inflation jumped to 7.9% year-on-year in February, abcnews. "The dollar extended a rebound versus major peers on Friday (yesterday) after a key US jobs report that could help the Federal Reserve decide whether to make an interest rate hike of up to 50 basis points next month," CNBC. "Indeed, there are a record 1.7 posted job openings for each person looking for work. Record numbers of people are quitting jobs each month, typically to take another job with higher pay. And nominal wages are rising at the fastest pace in decades," said Fed Chair Jerome Powell. Three days back, "For a brief moment, the yield on a two-year Treasury note was higher than that of the benchmark 10-year note. That part of the curve is viewed by many as a reliable signal that a recession could come in the next year or two," Reuters. What of India? "Analysts are of the opinion that the Reserve Bank of India (RBI), at the upcoming April 8 policy meet, may be forced to pivot to a 'neutral' stance," ET. "The RBI had in its February policy meeting downplayed inflation risks and projected an average CPI inflation of 4.5% in FT23." "Gross GST collection in March touched an all-time high of over Rs 1.42 lakh crore (Rs 1.42 trillion), the Finance Ministry said on Friday," ET. The higher the prices the higher the GST paid. GST does not include taxes on petrol and diesel which are reaching record levels, moneycontrol. Expensive transportation costs will raise prices further and increase GST collections to ever higher peaks. We will be lucky if the RBI does not reduce rates. Anything is possible.