Supply and Demand Drivers of Global Inflation Trends

RePEc Short ID: pmi740
ORCID iD: 0000-0002-6260-2133

Akinci, Ozge; Almuzara, Martín; Miranda-Agrippino, Silvia; Nallamotu, Ramya; Sbordone, Argia M.; Simitian, Greg; Zeng, William

Discussion Paper

Supply and Demand Drivers of Global Inflation Trends

Abstract: Our previous post identified strong global components in the slow-moving and persistent dynamics of headline consumer price index (CPI) inflation in the U.S. and abroad. We labeled these global components as the Global Inflation Trend (GIT), the Core Goods Global Inflation Trend (CG-GIT) and the Food & Energy Global Inflation Trend (FE-GIT). In this post we offer a narrative of the drivers of these global inflation trends in terms of shocks that induce a trade-off for monetary policy, versus those that do not. We show that most of the surge in the persistent component of inflation across countries is accounted for by global supply shocks—that is, shocks that induce a trade-off for central banks between their objectives of output and inflation stabilization. Global demand shocks have become more prevalent since 2022. However, had central banks tried to fully offset the inflationary pressures due to sustained demand, this would have resulted in a much more severe global economic contraction.

Keywords: global inflation; persistence; Multivariate Core Trend (MCT); supply chains; demand shocks;

JEL Classification: E31; E37; E52; F34;