The Global Economy Is Now Grappling with Domestic Inflation

The disruptions caused by the pandemic, government assistance programs, major central bank monetary policies, the ensuing economic recovery and the war in Ukraine all changed the global inflation picture. In 2021, we started to see significant upward price pressures that in many countries pushed inflation to levels not seen since the early 1980s. Many of these global pressures have since eased. In this Economic Viewpoint, we try to determine how much global factors are still influencing inflation in major advanced economies and in China. Based on our analysis of inflationary shocks, the interconnectedness of the economies in question and possible spillover effects, it appears that domestic factors are now largely fuelling inflation. Hopefully these country-specific factors will soon abate.