The Global Inflation Surge of 2021 to 2023

Why inflation rose to its highest levels in decades in many countries after the pandemic, and how central banks responded.

After decades of low inflation in rich countries, prices began rising rapidly in 2021. By 2022, inflation reached its highest levels in around 40 years in the United States, the United Kingdom and the euro area.

How high it went

In the United States, consumer price inflation peaked at about 9.1 percent in June 2022.
In the United Kingdom, it peaked at over 11 percent in October 2022.
In the euro area, it peaked at over 10 percent in October 2022.
In India, inflation rose above the RBI’s upper tolerance band of 6 percent for much of 2022.

The causes

Economists identified several overlapping causes:

Supply chain disruptions: shortages of goods, containers and chips as economies reopened.
Strong demand for goods, boosted by pandemic spending shifts and government support.
Large fiscal stimulus, especially in the United States.
Energy and food shocks: Russia’s invasion of Ukraine in 2022 sent gas, oil and food prices soaring.
Tight labour markets in some countries, pushing up wages.

Economists debated how much was due to supply problems versus excess demand. Research by Ben Bernanke and Olivier Blanchard found that early in the surge, energy, food and supply shortages drove most inflation, with tight labour markets playing a growing role later.

The central bank response

Many central banks initially described inflation as “transitory”. As it persisted, they raised interest rates at the fastest pace in decades. The U.S. Federal Reserve raised its policy rate from near zero in early 2022 to over 5 percent by mid-2023. The Reserve Bank of India raised its repo rate from 4 percent to 6.5 percent between May 2022 and February 2023.

The outcome

Inflation fell substantially in 2023 and 2024. In the United States, it came down without a recession, a so-called “soft landing”, which many economists had doubted was possible.

The cost-of-living squeeze

A family's wages rose 4 percent in 2022, but prices rose 9 percent. Their real income fell. Food and energy, which take a larger share of poorer households' budgets, rose especially fast. This is why the surge was felt as a cost-of-living crisis in many countries.

Thinking the cause was simply printing money

Monetary and fiscal stimulus played a role, but supply chain disruptions and energy shocks from the war in Ukraine were also major causes. Most economists see the surge as the result of several shocks at once.

Key takeaways

Inflation reached 40-year highs in the U.S., UK and euro area in 2022.
Supply disruptions, strong demand, stimulus, energy shocks and tight labour markets contributed.
Central banks raised rates rapidly after initially calling inflation transitory.
Inflation fell in 2023 and 2024, with the U.S. avoiding recession.