Mechanism of regime changes of global inflation in 2012–2023

Abstract

The paper studies the process of regime changes: from low inflation and interest rates in 2012–2019 to high inflation and even stagflation in 2020–2023. The authors selected eleven countries for analysis: BRICS, USA and Great Britain, and four EU leading states— Germany, France, Spain and Italy. The trends examined in the first period reflect the difficulty in determining (on monthly data) the role of classic factors influencing the inflation processes (by CPIs) — monetary policy and unemployment, with energy and food prices having strong influence in this period. In general, the upturn in 2012–2019 was not too strong and created a rather comfortable (and predictable) environment for low inflation. In the period of shock recession after the COVID lockdowns the speed of consumer inflation in six developed countries had tripled. General inflation was affected by energy and food process and formatted so rapidly that such factors as unemployment and money supply growth turned out irrelevant. Having reached high growth rate, inflation moved wages up and fixed both its rate (one side elasticity) and dynamics. Core inflation index (manufactured goods) grew in parallel with unit labor cost, which entailed cost-push inflation effect. Growing interest rates were designed to slow down inflation by squeezing economic activity, which was not that simple in terms of ULC in the short run.