As in the United States, policymakers in other countries have been surprised by the persistently high inflation. Price increases were expected to ease as economies recover from the pandemic, but higher energy and food prices continued to drive inflation around the world.
After Russia’s invasion of Ukraine, expectations about inflation were torn apart and reset much higher in light of higher commodity prices. The war raised concerns about the stability of energy supplies from Russia, which are crucial to Europe, and disrupted food production, increasing the risks of a global hunger crisis. Meanwhile, supply chains remain burdened by the disruptions caused by the pandemic, and demand for some goods remains stronger than production can handle.
High inflation is widespread: between the United States, the eurozone and so-called advanced economies, 60 percent of countries have annual inflation rates above 5 percent, according to the Bank for International Settlements, a central bank. It is the largest share since the 1980s and poses a serious problem for central banks, which usually target inflation at 2 per cent. More than half of countries in emerging economies have inflation rates above 7 percent, the bank said. For now, China and Japan are notable exceptions.
“We may be on the cusp of a new inflationary era,” Augustin Karstens, the bank’s president, said last week. “The forces behind high inflation could continue for some time.”
After central banks in the United States and Europe have tried for more than a decade to raise inflation to their targets and keep it stable, policymakers are suddenly struggling to tame it. Energy and food prices are often volatile, but what central bank officials worry about is that price increases could spill over to other goods and services, followed by workers’ demands for higher wages to counteract the rising cost of living.
In Britain, inflation is at its highest level in three decades. Economists polled by Bloomberg expect data published on Wednesday showing prices in March rose 6.7 percent from a year earlier. The Bank of England has already raised interest rates three times since December to its epidemic level amid mounting evidence that companies are responding to higher rates with higher wages.
In the eurozone, annual inflation jumped to 7.5 percent in March, up from 5.9 percent the previous month. Higher energy prices are the main driver of inflation there, with far fewer indications of large wage increases. But the European Central Bank has begun implementing a plan to end its massive bond-buying program to clear the way for an interest rate hike, because “inflation is becoming broader and more stable,” according to its latest policy meeting. Policy makers will meet again this week.
Even in Japan, which has struggled with very low or negative inflation for decades, there is an indication that higher prices are reaching its shores. Last month, a government survey of consumer expectations for one-year inflation rose to 2.7%, the highest level since 2014.