Inflation is the general rise in prices, including food and energy. It occurs when demand for goods and services outpaces supply, which can lead to a chain reaction as the cost of producing those good increases. It can also be a sign of economic expansion that leads to higher incomes, which tend to increase consumer spending. This type of demand-pull inflation is often less harmful than other types.
In the 2021-2022 period, many countries experienced a surge in inflation, and economists disagreed about its cause. Some saw it as a result of the COVID-19 pandemic and its effect on global supply chains, which caused shortages of some important products. Others argued that it was the result of government stimulus programs that increased available cash and led to higher spending by consumers and businesses.
Some believe that the surge was temporary and would slow as global supplies of essential goods improved, and as workers returned to their jobs and demand for those goods recovered. Other experts see a longer-lasting phenomenon, and predict that underlying core inflation will continue to accelerate in the months ahead.
The inflation that has accelerated since the start of the pandemic has been concentrated in durable goods and services, reflecting higher labor costs as companies try to pay their workers higher wages. This contributes to the stronger influence that core items have on total U.S. inflation acceleration, compared to other OECD countries. This inflation acceleration has also been fueled by rising oil prices and backlogs of work orders for goods and services that are in short supply, caused by the COVID-19-related disruptions to the auto-related industry.
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