2021–2022 inflation surge

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Inflation rate in the United States and eurozone, January 2016 through April 2022
Commodity prices in the United States

The 2021–2022 inflation surge is the elevated economic inflation throughout much of the world that began in mid 2021. It has been attributed primarily to supply shortages (including chip shortages and energy shortages) caused by the COVID-19 pandemic and the Russian invasion of Ukraine, coupled with strong consumer demand,[1] driven by historically robust job and wage growth as the pandemic receded.[2] As a result, many countries have seen their highest rates of inflation in decades.[3][4][5] This inflation, and more generally stagflation, was predicted in late summer 2021 by Karim Abadir,[6] whose article also explained the causes of his forecast. It is based on the same model he used to predict the timing of the Great Recession of 2008.

Background and causes[edit]

While there is no unanimous agreement by economists as to the exact cause of the inflation surge, there are several theories. Most attribute it to product shortages resulting from global supply-chain problems, largely caused by the COVID-19 pandemic.[7] Other causes cited include strong consumer demand driven by historically robust job and nominal wage growth;[8] and the fact that 2021 prices are being compared to 2020 prices, which were depressed due to pandemic-related shutdowns.[9] In the United States, Republicans and some economists cite spending from the passage of COVID-19 relief programs by the United States Congress as a factor for the inflation surge.[10][11]

A debate arose among economists early in 2021 as to whether inflation was a transitory effect as the world emerged from the pandemic, or if it would become persistent. Prominent economists like Larry Summers and Olivier Blanchard warned of persistent inflation, while the Federal Reserve, Treasury Secretary and former Fed chair Janet Yellen and most Wall Street economists were on "Team Transitory." As 2021 turned to 2022, inflation continued to accelerate. In response, the Federal Reserve increased the fed funds rate by 25 basis points in March 2022, the first increase in three years, followed by 50 basis points in May, then another 75 basis points in June, moves that some analysts considered late and dramatic, and which might induce a recession. The June rate increase was the largest since 1994, and Fed chairman Jerome Powell signaled that another increase of 50 to 75 basis points might come in July. After Eurozone inflation hit a record high 8.1% in May, the European Central Bank announced in June it would raise rates in July by 25 basis points, the first increase in eleven years, and again in September by as much as 50 basis points. After the Fed's third rate increase, Summers said "We are still headed for a pretty hard landing." Economic historian Niall Ferguson likened the Federal Reserve's monetary policy to that of the 1960s and 1970s that resulted in the stagflation of the 1970s.[12]

Mark Zandi, chief economist of Moody's Analytics, analyzed consumer price index components following the May 2022 report that showed an 8.6% inflation rate. He found that the 2022 Russian invasion of Ukraine was the principal cause of higher inflation, comprising 3.5% of the 8.6%. He said oil and commodities prices jumped in anticipation of and response to the invasion, leading to higher gasoline prices. Resulting higher diesel prices led to higher transportation costs for consumer goods, notably food. Zandi cited the pandemic and a housing shortage as the next largest contributors to inflation, attributing 0.1% of the 8.6% to effects of the American Rescue Plan legislation. Investment banker Steven Rattner and economist Larry Summers had previously cited the legislation as contributing to inflation.[13]

Economists at Deloitte noted that consumer spending on goods moved in tandem with spending on services prior to the COVID-19 recession, but upon emerging from the recession consumers significantly shifted spending to goods, particularly in the United States. This shift placed stress on supply chains such that the supply of goods could not meet demand, resulting in price increases. They observed that in November 2021 inflation for durable goods was 14.9%, compared to 10.7% for consumable goods and just 3.8% for services in the United States; they noted similar results in several other major economies. They also noted that supply chain stresses increased prices for commodities and transportation, which are cost inputs for finished goods.[14]

In countries where food represents a larger part of the inflation basket, rising prices force low-income consumers to tighten their belts - crimping spending on other goods and slowing economic growth. "It looks like in those countries with high inflation, consumer spending has weakened because household spending power has taken a hit from rising prices," said William Jackson, chief emerging markets economist at Capital Economics consultancy. "And you've generally seen much more aggressive moves to tighten monetary policy."[15]

Some analysts and left-leaning politicians argued that price gouging could play a role. They noted that in recent decades major industries, notably retailing, had concentrated into oligopolies that dominated markets and consequently wielded higher pricing power. The analysts argued that in an inflationary environment, consumers know prices are increasing but do not have good knowledge of what reasonable prices should be, giving retailers an opportunity to raise consumer prices beyond the inflation they were seeing in their costs, thereby permanently locking in higher prices. There was anecdotal but inconclusive evidence this was happening, and most economists generally did not see gouging as a significant contributor to inflation at the time.[16][17][18]

Impact on countries[edit]

Housing prices inflation from Q4 2020 to Q4 2021 in the United States

While most countries saw a rise in their annual inflation rate during 2021 and 2022, some of the highest rates of increase have been in Europe, Brazil, Turkey, the United States, and New Zealand.[9][19] By June 2022, nearly half of Eurozone countries had double-digit inflation, and the region reached an average inflation rate of 8.6%, the highest since its formation in 1999.[20]

In the US, the Consumer Price Index rose 6.8% between November 2020 and November 2021, spurred by price increases for gasoline, food, and housing. That has been the highest US inflation rate since 1982[21] and is believed to have played a major role in a decline in the approval rating of President Joe Biden, who took office in January 2021, being net negative starting in October of that year.[22] Many Republicans have blamed the actions of Biden and fellow Democrats for fueling the surge despite impacts being global.[23]

Canada also saw multi-decade highs in inflation, hitting 5.1% in February 2022[24] and further increasing to 6.7% two months later.[25] In April, inflation rose again to 6.8%,[26][27] before jumping to 7.7% in May, the highest ever since 1983.[28][29]

In Turkey, retail prices rose 9.65% in December compared to November, for an annual rate of 34%. Some of the largest increases were for electricity, natural gas, and gasoline. The economy was further strained by a currency crisis caused by a series of rate cuts by the central bank; the Turkish lira lost 44% of its value against the dollar during 2021.[30]

In Brazil, inflation hit its highest rate since 2003—prices rose 10.74% in November 2021 compared to November 2020. Economists predicted that inflation has peaked and that in fact the economy may be headed for recession, in part due to aggressive interest rate increases by the central bank.[31]

In the Netherlands, the average 2021 inflation rate was the highest since 2003.[32] The inflation rate in November was the highest in nearly 40 years.[33] With energy prices having increased by 75%, December saw the highest inflation rate in decades.[32]

In Fiji, inflation rose to 4.7% in April 2022 compared to -2.4% in 2021.[34] Food prices rose by 6.9% in April 2022, fuel increased by 25.2%, kerosene by 28.5% and gas by 27.7%.[35] This has also resulted in the increase of bus fares.[36]

In June 2022 the European Central Bank has decided to raise interest rates next month for the first time in more than 11 years due to the elevated inflation pressure.[37][38]

Impact of the 2022 Russian invasion of Ukraine[edit]

Natural gas prices in Europe and United States
  Europe TTF natural gas prices
  United States Henry Hub natural gas prices
  National Balancing Point NBP (UK) natural gas prices

On 22 February 2022, prior to the Russian invasion, the German Government froze the Nord Stream 2 pipeline between Russia and Germany,[39] causing natural gas prices to rise significantly.[40] Especially in Europe, this translated to much higher electricity bills.[41]

On 24 February, Russian security forces began a "special military operation" in Ukraine,[42] to overthrow the democratically elected government, and replace it with a Russian puppet government.[43] Prior to the invasion, Ukraine produced 11.5% of the world's wheat crop, and 17% of the world's corn crop, and the invasion caused wheat and corn prices to rise dramatically,[44] which in turn caused foodstuffs and biodiesel prices to rise.[45][46] Additionally, the price of Brent Crude Oil per barrel rose from $97.93 on 25 February to a high of $127.98 on 8 March,[47] this caused petrochemicals and other goods reliant on crude oil to rise in price as well.[48][49]

The effect of sanctions on the Russian economy caused annual inflation in Russia to rise to 17.89%, its highest since 2002.[50] Weekly inflation hit a high of 0.99% in the week of 8 April, bringing YTD inflation in Russia to 10.83%, compared to 2.72% in the same period of 2021.[50]

See also[edit]


  1. ^ Bureau, Our (2022-01-25). "Strong consumer demand lifts United Spirits net 26.62%". www.thehindubusinessline.com. Retrieved 2022-06-30.
  2. ^
  3. ^ Weber, Alexander (2 February 2022). "Euro-Zone Inflation Unexpectedly Hits Record, Boosting Rate Bets". Bloomberg. Retrieved 12 February 2022.
  4. ^ "India's Dec WPI inflation at 13.56% as firms fight rising costs". Reuters. 14 January 2022. Retrieved 12 February 2022.
  5. ^ Kihara, Leika (14 January 2022). "Japan's wholesale inflation at near record high on broad price gains". Reuters. Retrieved 12 February 2022.
  6. ^ Abadir, Karim (September–October 2021). "Stagflation, reincarnated". International Banker.{{cite web}}: CS1 maint: date format (link)
  7. ^ Austin, Craig (November 10, 2021). "How the supply chain caused current inflation, and why it might be here to stay". PBS. Retrieved December 26, 2021.
  8. ^
  9. ^ a b DeSilver, Drew (November 24, 2021). "Inflation has risen around the world, but the U.S. has seen one of the biggest increases". Pew Research Center. Retrieved December 26, 2021.
  10. ^ Morgan, David (2021-11-01). "Explainer: Republicans blame Biden for inflation, but are they right?". Reuters. Retrieved 2022-03-24.
  11. ^ Smith, Jillian (March 31, 2022). "Economists say American Rescue Plan contributed to inflation". The National Desk. Retrieved 2022-06-14.
  12. ^ Multiple sources:
  13. ^ Mui, Christine (June 13, 2022). "Top economist Mark Zandi says forget Biden's stimulus—Putin's war in Ukraine is by far the biggest driver of inflation". Fortune.
  14. ^ Ira Kalish; Michael Wolf (February 18, 2022). "Global surge in inflation". Deloitte.
  15. ^ "Rising costs: How emerging economies are being affected by inflation". World Economic Forum. Retrieved 2022-06-21.
  16. ^ Lopez, German (June 14, 2022). "Inflation and Price Gouging". The New York TImes.
  17. ^ Brooks, Khristopher J. (May 27, 2022). "Companies use inflation to hike prices and generate huge profits, report says". CBS News.
  18. ^ DePillis, Lydia (June 3, 2022). "Is 'Greedflation' Rewriting Economics, or Do Old Rules Still Apply?". The New York Times.
  19. ^ "Eurozone inflation hits record 8.1% amid rising energy costs". Associated Press. 31 May 2022.
  20. ^ Eddy, Melissa (July 1, 2022). "Eurozone inflation rises to 8.6 percent, the highest ever, driven by high energy prices". The New York Times.
  21. ^ Aratani, Lauren (December 10, 2021). "US inflation rate rose to 6.8% in 2021, its highest since 1982". The Guardian. Retrieved 27 December 2021.
  22. ^ Enten, Harry (December 21, 2021). "Biden's economic ratings are worse than Carter's". CNN. Retrieved December 26, 2021.
  23. ^ Guida, Victoria (December 9, 2021). "Another eye-popping inflation reading is ahead. Next year could look very different". Politico. Retrieved 26 December 2021.
  24. ^ Evans, Pete (16 February 2022). "Canada's inflation rate rises to 5.1% — highest since 1991". Canadian Broadcasting Corporation. Retrieved 16 February 2022.
  25. ^ Evans, Pete (20 April 2022). "Canada's inflation rate jumps to new 31-year high of 6.7%". Canadian Broadcasting Corporation. Retrieved 14 May 2022.
  26. ^ "Consumer Price Index, April 2022". Statistics Canada. Government of Canada. 18 May 2022. Retrieved 20 June 2022.
  27. ^ Argitis, Theophilos (18 May 2022). "Canadian Inflation Hits New Three-Decade High of 6.8% on Housing". Bloomberg News. Bloomberg L.P. Retrieved 20 June 2022.
  28. ^ "Consumer Price Index, May 2022". Statistics Canada. Government of Canada. 22 June 2022. Retrieved 24 June 2022.
  29. ^ Evans, Pete (22 June 2022). "Canada's inflation rate now at 7.7% — its highest point since 1983". CBC News. Canadian Broadcasting Corporation. Archived from the original on 22 June 2022. Retrieved 24 June 2022.
  30. ^ "Turkey hikes energy prices; Istanbul monthly inflation highest in decade". WTVB. January 1, 2022. Retrieved 1 January 2022.
  31. ^ Rosati, Andrew (December 10, 2021). "Brazil's Inflation Likely Peaked After Hitting 18-Year High". Bloomberg. Retrieved 1 January 2022.
  32. ^ a b "Torenhoge inflatie in december, cijfer over heel 2021 naar 2,7 procent" (in Dutch). NOS. January 11, 2022. Archived from the original on 2022-01-11.
  33. ^ "Strongest inflation in almost 40 years". Statistics Netherlands. December 7, 2021. Archived from the original on 2021-12-07.
  34. ^ Fijivillage. "Annual headline inflation rises to 4.7% in April". www.fijivillage.com. Retrieved 2022-06-11.
  35. ^ Fijivillage. "Food prices rose by 6.9% in April". www.fijivillage.com. Retrieved 2022-06-11.
  36. ^ "Bus fare increase to come into effect from May 13". FijiTimes. Retrieved 2022-06-11.
  37. ^ Bank, European Central (2022-06-09). "Monetary policy decisions". {{cite journal}}: Cite journal requires |journal= (help)
  38. ^ "Eurozone interest rates set to rise for first time in 11 years". BBC News. 2022-06-09. Retrieved 2022-06-12.
  39. ^ Marsh, Sarah; Chambers, Madeline (2022-02-22). "Germany freezes Nord Stream 2 gas project as Ukraine crisis deepens". Reuters. Retrieved 2022-05-02.
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  41. ^ "Energy inflation rate continues upward hike, hits 27%". ec.europa.eu. Retrieved 2022-05-02.
  42. ^ "Ukraine crisis: Russia orders troops into rebel-held regions". BBC News. 2022-02-22. Retrieved 2022-05-02.
  43. ^ Kudlenko, Anastasiia. "Ukraine: Putin's desire to install a puppet government draws from the Bolshevik playbook". The Conversation. Retrieved 2022-05-02.
  44. ^ Welle (www.dw.com), Deutsche. "Ukraine war increases global food insecurity | DW | 21.03.2022". DW.COM. Retrieved 2022-05-02.
  45. ^ Reuters (2022-03-05). "Food prices jump 20.7% yr/yr to hit record high in Feb, U.N. agency says". Reuters. Retrieved 2022-05-02.
  46. ^ "Biodiesel prices (SME & FAME)". Neste worldwide. 2015-02-19. Retrieved 2022-05-02.
  47. ^ "Crude Oil Price Today | BRENT OIL PRICE CHART | OIL PRICE PER BARREL | Markets Insider". markets.businessinsider.com. Retrieved 2022-05-02.
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  49. ^ "Petrochemical prices expected to keep rising". Globuc. Retrieved 2022-05-02.
  50. ^ a b Reuters (2022-04-13). "Inflation in Russia hits highest in more than 20 years". Reuters. Retrieved 2022-05-02.

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