Central banks risk misreading an increasingly complex inflation picture that has become muddied by companies repatriating supply chains and higher energy prices, which could trigger a sharp sell-off in global equities, two prominent macro strategists have warned.

War in Ukraine and subsequent sanctions against Russia have accelerated a push for businesses around the world to de-globalise supply chains, which have come under heavy strain through the pandemic. But the costly shift will add further thrust to rising consumer prices at a time of intense inflation around the world.

“The scope for a policy mistake is enormous,” said Larry Jeddeloh, a longtime geopolitical strategist and founder of TIS Group, a consultancy that provides macroeconomic insights for investors.

In the past two decades, “many US companies moved manufacturing to China,” he said in an interview following a presentation to UBS clients on Wednesday. “That is now reversing and it will cost more to produce goods closer to the US.”

Chinese supply chains have emerged as particularly vulnerable, and have already faced the strain of a tit-for-tat tariff conflict that began under president Donald Trump five years ago.

“The main problems where relationships fracture politically and diplomatically is that it moves into the economic and trade realm,” he said.

Read the full story at afr.com.