Price gains are shooting higher across many advanced economies as consumer demand, shortages and other pandemic-related factors combine to fuel a burst of inflation.
The spike has become a source of annoyance among consumers and worry among policymakers who are concerned that rapid price gains might last. It is one of the main factors central bankers are looking at as they decide when — and how quickly — to return monetary policy to normal.
Most policymakers believe that today’s rapid inflation will fade. That expectation may be reinforced by the fact that many economies are experiencing a price pop in tandem, even though they used vastly different policies to cushion the blow of pandemic lockdowns.
The shared inflation experience underscores that mismatches between what consumers want to buy and what companies are able to deliver are helping to drive the price increases. While those may be amplified by worldwide stimulus spending, they are not the simple result of nation-specific policy choices — and they should eventually work themselves out.
“There is a lot of stimulus in the system, and it is pushing up demand and that’s driving higher inflation,” said Kristin Forbes, a Massachusetts Institute of Technology economist and former external member of the Bank of England’s Monetary Policy Committee.
“Some of these big global moves do tend to pass through and prove temporary,” Ms. Forbes said. “The big question is: How long will these supply chain pressures last?”
The United States Federal Reserve’s preferred price index rose 4.2 percent in July from the prior year, more than double the central bank’s 2 percent target, which it seeks to hit on average over time. In the eurozone, inflation recently accelerated to the highest level in about a decade. In Britain, Canada, New Zealand, South Korea and Australia, price gains have jumped well above the level central banks set as their goals.
The big increases have come as supply chains have snarled around the world, adding to transportation costs and throwing the delicate balance of corporate globalization badly out of whack. Prices for airline tickets and hotel rooms dipped last year in the depths of the pandemic, and now they’re bouncing back to normal levels, making the numbers look higher than they would if compared with a less depressed base. Neither issue should last indefinitely.
There is a danger that the global price surge could last longer — and become more country-specific — if workers in nations experiencing high inflation today bargain for wage increases and are more accepting of steadily higher prices. Bringing entrenched inflation back under control could require painful monetary policy responses, ones that would probably plunge national economies back into recession.
Given those high stakes, the mere possibility of lasting inflation is ramping up pressure on…