The author is Chief Economist at G+ Economics

The central bank made a heroic effort to bring interest rates up to normal from emergency lows. But this is happening in a world still beset by the Covid-19 pandemic, while also dealing with wars and chaotic commodity markets in Europe.

It’s a tall order, beyond the ability of most central bankers to avert economic catastrophe and bring a soft landing into the new normal.

Much more is being asked of central banks today than in the early days of Covid-19. As early as 2020, their policies will likely focus on achieving the goal of a rapid rebound in global nominal gross domestic product (GDP) to a self-sustaining full-employment recovery — without any reliable forecast.

But now, after a global vaccination program and waves of new virus mutations over the past year, banks face the daunting task of finding a “new and different” path for economies. Bankers want to avoid stifling a self-sustaining recovery without allowing inflation to accelerate.

Margins of error are unavoidable. The economic shock of the early days of Covid was so large – and the cost to society and public finances – that central banks had to adjust policy to restore growth potential.

That remains the goal, despite the government’s mitigation of the social impact of the COVID-19 outbreak and supply chain disruptions wreaking havoc on consumption and investment across industries and regions. This was followed by inflation fluctuations, matching the shock of halting growth.

A lack of understanding of the duration of the pandemic – or what typical labor market and trade linkages will look like – means that policies need to be skewed toward mitigating risks.

After all, higher inflation could be a temporary policy option when the central bank has enough room to respond by raising interest rates. Furthermore, in a young recovery, higher prices can serve as an economic rebalancing mechanism to incentivize the expansion of supply capacity and broaden the base of growth from consumption to investment. While hardly a risk-free strategy, interest rates are a useful tool.

However, secular stagnation offers no policy options. A decade of weak investment and productivity growth preceded a recession-scale pandemic shock following the global financial crisis and the last Great Recession. Furthermore, after a decade of quantitative easing, policy rates are already at zero, making it difficult to provide the necessary stimulus.

However, due to Russia’s war on Ukraine, the level of risk to central banks is very different from the magnitude of long-term inflation and growth potential.

Unprecedented sanctions imposed by the West on Russia have cut the largest energy exporter and key industrial and agricultural raw materials from the world financial network.

Boycotts by Western consumers, businesses and governments have meant banks have stopped financing Russian trade, while ports have refused to discharge cargo.

As physical disruptions emerge, coping with chronically higher energy costs will become as important to managing the health of an economy as managing supply. In effect, these cost spikes amplify the stagflation shock from Covid supply chain distortions.

Soaring global supply costs mean central banks now have less ability to lower their highest consumer price readings in a decade. Nor can they easily provide incentives for companies down the supply chain that are forced to ration production. Finally, restoring consumer spending power has become more difficult amid a rapidly declining pandemic savings and living standards.

Changing the route of Russian exports and global commodity trade will dictate new, longer supply routes, and new, higher global trade prices—in short, deglobalization.

This implies a lasting shift towards higher equilibrium in raw material prices and structural changes in how businesses and households spend on energy, metals and food.

With oil already well above the price stability targets of all major central banks, the only way to reduce inflation is to destroy demand.

But it means an impossible trade-off at a time when government budgets face soaring financing costs and households struggle with their finances.

As the global financial system becomes increasingly vulnerable in a world of high inflation, high debt and geopolitical insecurity, managing the “new difference” while avoiding extreme economic volatility will be the biggest challenge for policymakers.