Pandemic and War Inflation: Lessons from the International Experience

This paper examines the drivers of the 2020–23 inflation surge, with an emphasis on the similarities and differences across countries, as well as the role that monetary policy frameworks might have played in shaping central banks’ responses. The inflation surge in the U.S. and abroad was set in motion by two global events: the COVID-19 pandemic and Russia’s invasion of Ukraine. Pandemic-related supply disruptions, a rotation of consumer spending toward goods, and commodity price increases exacerbated by Russia’s invasion of Ukraine resulted in unusually large relative price increases, which required time to be absorbed. A simple Phillips curve framework suggests that the inflation surge was mainly driven by “cost push” factors, such as supply shortages and relative price shifts. Tight labor markets contributed to the persistence of above-target inflation. Despite differences in mandates of the monetary policy frameworks, central banks around the world responded similarly to recent global events.