UBS Chief Economist Says Global Inflation Is Driven by Temporary Shocks
UBS chief economist Paul Donovan argues that global inflation is driven by temporary external shocks rather than structural economic flaws, offering relief once geopolitical disruptions cease.
Is the global economy trapped in an endless inflationary spiral? A recent report by Paul Donovan, chief economist at UBS Global Wealth Management, presents a picture that starkly contrasts with the daily struggles experienced by consumers.
UBS operates in more than 50 countries and manages trillions of dollars in assets, a position further solidified following its acquisition of historic rival Credit Suisse. The Swiss banking giant's economic outlooks serve as a leading compass for institutional investors and global capital markets.
According to Donovan's analysis, inflation in developed economies has repeatedly neared its conclusion over the past five years, only to be disrupted by a relentless series of one-off external shocks.
This complex chain of events began with severe supply chain disruptions during the COVID-19 pandemic, followed by Russia's invasion of Ukraine, United States tariff policies, and conflicts in the Middle East. Each of these events drove up prices for specific goods and services, but the price surges subsequently subsided or reversed before making way for the next shock.
This phenomenon is particularly evident in the behavior of oil prices and household appliances in recent years. Oil prices spiked following the invasion of Ukraine, declined during the period of U.S. tariffs, and surged again amid regional conflicts.
Similarly, appliance prices jumped due to post-pandemic supply failures, dropped despite the war in Ukraine, and later rose in the United States—though not in Europe—due to tariffs. The economic conclusion is clear: across both goods and services, the categories driving inflation in one year are not the ones driving it the next.
This reality differs fundamentally from historical inflation periods, when structural domestic imbalances fueled broad-based price increases that persisted for years. Although consumers feel trapped in an endless cycle of rising costs eroding their purchasing power, current economic conditions do not allow localized price hikes to sustain themselves indefinitely.
Despite five years of alarming headlines regarding recurring inflation shocks, economies lack the structural flaws required to generate chronic inflation. What the global economy needs to restore stability is simply an end to geopolitical and external disruptions.
