That initial rebound to the break-even cost of producing more oil was then followed in 2021 by a surge in demand for gas, led by big north Asian economies in response to disruptions to renewable power generation.
The third phase for the UK was the effective start of Brexit on January 31 2020, removing the right of Europeans to freely move to and work in the UK. Brexit also played a role in the rise in goods prices, reflecting extra processes and costs associated with EU imports.
The fourth phase and the most impactful commenced in February 2022 when Russian President Vladimir Putin launched his invasion of Ukraine.
Like a set of dominos falling, the invasion set off a chain reaction of four different types of inflationary shocks: energy, food, supply chains and militarisation.
The energy shock was the explosion in heating and transport costs, driven by the removal of Russian gas supplies, both from sanctions and Russia’s policy of restricting supply. The ensuing mad scramble to secure enough gas before winter led to exponential rise in gas prices for UK and European economies.
The food shock came from a drop in supply of key agricultural commodities, dominated by Ukraine and Russian production, such as wheat and cooking oils.
All countries were impacted by the effect on the price of essentials like bread and pasta, especially poorer economies, triggering debt crisis as huge government subsidies were needed to prevent starvation.
The supply chain shock was the impact on industries and companies reliant on parts or services emanating from Russia. Coming on top of frictions with China and Covid-related supply bottlenecks; these further incentivised companies to source from countries regarded as more aligned, stable and closer to home.
Inevitably this meant the lowest cost supplier was no longer always the first choice.
The final shock of militarisation started with transfers of weaponry to the Ukraine by Russia and Ukraine’s allies and evolved into outright increases in government defence budgets as the war continued.
Marking a sea change in post World War II policies, Germany approved a huge increase in military spending, Nato membership expanded in Europe and Japan approved a doubling of its defence budget from 1 per cent to 2 per cent GDP.
Pulling this altogether you can see a progression from moderate and cyclical inflation shocks in 2020 to much larger, interconnected and more persistent shocks from 2021 onwards.