New Delhi, April 7 -- The ongoing war in West Asia has cast a pall of uncertainty over the global economy. The disruptions in energy supplies have begun to ripple through supply chains across the world. In its latest monthly review of the Indian economy, the finance ministry has noted: "Recent shocks are being transmitted through higher input costs, supply constraints and pressures across sectors, with early indications of some moderation in economic activity."

For economic policymakers, managing a disruption in supply is far more complicated than responding to a sudden shift in demand. The reason is simple. In the case of a demand shock, both output and prices move in the same direction. For example, a sudden drop in demand in an econom...