Inflation is a Global Problem

This New York Times newsletter focusing on global inflation is worth reading. One can debate whether supply chains, excessive government spending, or monetary policy is the chief culprit for the current inflation, though they all play a role. Here is, in part, what the newsletter written by German Lopez says:

“The big factors that drove up inflation in the U.S. also affected the rest of the world: the disruption of supply chains by both the pandemic and Russia’s invasion of Ukraine, and soaring consumer demand for goods.

“But increasing inflation has played out differently in different countries, said Jason Furman, an economist at Harvard University. The U.S.’s earlier, bigger price spike had different causes than Europe’s more recent increase. (Countries differ in how they calculate price changes, but economists still find comparisons of the available data useful.)

“In the U.S., demand has played a bigger role in inflation than it has elsewhere. That is likely a result of not just the American Rescue Plan but also economic relief measures enacted by Donald Trump. Altogether, the U.S. spent more to prevent economic catastrophe during the pandemic than most of the world did. That led to a stronger recovery, but also to greater inflation.

“In Europe, supply has played a bigger role. The five-month-old war in Ukraine was a more direct shock to Europe than it was to the rest of the world, because it pushed the continent to try to end its reliance on Russian oil and gas. That prompted Europe’s recent jump in inflation.”