Ignore it and it will go away. That about sums up the attitude many have towards the recent surge in inflation and delays in manufacturing production, or even in some cases towards the Covid-19 pandemic. But none of these problems have gone away after being ignored, nor are they likely to soon. Financial markets, policymakers and consumers would do well to take note of a recently released in-depth study by the International Monetary Fund into the causes and effects of what is known in economic jargon simply as the supply chain impact, but which is intimately connected with surging prices and supply shortages . This impact is likely to prove far from being the transitory phenomenon it is often supposed to be. That, in turn, has ominous implications for inflation, interest rates, stock and bond prices, wages, employment, taxes and so on, well into the future. As the IMF observed, some of the supply constraints caused by the pandemic and other factors will prove transient but others could take a long time to ease. The “outlook is uncertain, and disruptions may continue for some time”, it said. In certain sectors, disruptions could continue into 2023 or beyond. Unctad, in its latest Global Trade Update, also noted the “unprecedented pressures on supply chains”. Major companies have become “strongly focused” on managing risks for their supply networks, said the UN trade body, “but delays have persisted nevertheless”. Contrast this with blithe and misleading assurances by investment analysts who are intent on “talking their books” by claiming that we just need to pause for a short while so that markets can shrug off the impact of supply disruptions – and continue “buying the dip” in the meantime. As with “ long Covid ”, the after-effects of supply shocks could extend from the acute into the chronic stage, and there is growing evidence that they have changed people’s behaviour in ways that could leave a lasting mark on employment patterns and fiscal liabilities. It seems incredible that, faced with such potentially severe problems (not to mention Covid-19 itself or the existential threat of climate change or a possible debt crisis ), world leaders’ attention is riveted on the Ukraine or Taiwan situations. What we might call a failure of leadership. Unless we are going to descend into a third world war (not impossible given the rapid rise in Russo-US and Sino-US tensions when civil economics is forced to take a back seat to priorities), leaders should be focusing laserlike on what lies behind supply shortages. It’s easy to dismiss these as transitory, justifying the “ignore and it will go away” argument as Covid-19 recedes to the endemic stage, lockdowns subside, social mobility increases, people go back to work and production recovers. Yet the pandemic has masked a series of underlying changes and problems which the IMF and other studies throw light on. One is the history of underinvestment in the production of semiconductors and other key materials and capital goods despite their vital importance to technological progress and global economic growth and consumption. The pandemic’s impact on demand for information technology and artificially intelligent goods and services has boosted semiconductor demand and this is unlikely to be a passing phenomenon. Teleworking is here to stay and demand for goods and services has undergone a perhaps lasting shift towards consumption at home. Now there is a scramble everywhere, from the United States and Europe to Japan and China , to invest in semiconductor production to overcome supply shortages. But, as the IMF noted, “significant expansions of productive capacity will require building new foundries, which can take about two to four years”. Contrariwise, the uncoordinated dash now to build new capacity, not only to counter pandemic-induced supply shortages but also to create competing supply chains, carries the risk, the IMF said, of “excess supply in the long run”. Don’t blame this on the coronavirus. As the IMF said, semiconductor demand was “affected by geopolitical tensions prior to the pandemic, particularly those between the US and China. With semiconductors increasingly becoming a strategic resource, some countries had been seeking to increase their resiliency by partially renationalising production and stockpiling inventories .” Supply shortages have been a major factor behind inflation and here, too, the “ignore and it will go away” syndrome prevailed initially. Central banks are now gearing up – the US Federal Reserve among the most aggressive – to fight inflation with interest rate increases but the cost of the cure might be worse than the disease if tightening triggers a financial collapse. The global economy is in a bind and instead of looking closely at the structural problems that underlie this, many policymakers prefer to take refuge in the fiction that cyclical factors and the pandemic are the culprits. Worse, they seemingly wish to rattle sabres against created “enemies” rather than acknowledge the need for concerted remedial action. The “adults” in the room are behaving like children. Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs