The Return of the World Economy to a High Inflation Regime

Abstract

Global inflation is one of the most significant challenges for the post-pandemic world economy. After several decades of low inflation and even elements of deflationary processes in developed countries, the danger of falling into a new period of great inflation had seemed insignificant. Dovish monetary policy during the 2009–19 period did not provoke a spike in inflation, and the slowdown of the economy during the lockdown period put the vigilance to rest. However, the COVID-19 pandemic and anti-crisis measures it triggered, the Russia-Ukraine conflict, and sanctions and anti-sanctions solidified inflationary processes around the world, both in developed and developing countries. In this article, we show the inertial nature of inflation in both the U.S. and the European Union (EU) and argue that there has been a transition to a high inflation regime, despite the decline in developed country inflation in the first quarter of 2023 mentioned in the International Monetary Fund’s (IMF) January report. Getting out of this high inflation regime will require much more serious and time-consuming measures than those used to manage inflation in the low inflation regime.