Fears of Inflation: What’s Going On?

Graham Bird

Published: June 2022

Although there are global differences in rates of inflation, a sharp acceleration in inflation during 2021/22 occurred in most parts of the world. Measurement matters. Differences exist between headline and core rates of inflation. These reflect the composition of inflation. This is not the first time in the post-1945 period that inflation has accelerated and reached a relatively high level. Looking at earlier episodes may help in understanding the recent acceleration. Accumulated inflation theory also helps in explaining what’s going on. There are a number of factors at work both on the supply side and the demand side, although their contribution varies across countries. Macroeconomic policy designed to manage aggregate demand will play a key role in tackling inflation, but supply-side and labour-market issues are also important. In predicting the future of inflation, the central question is whether or not a higher rate of inflation becomes embedded in expectations.