Supply and Demand Drivers of Global Inflation Trends

Ozge Akinci, Martin Almuzara, Silvia Miranda-Agrippino, Ramya Nallamotu, Argia Sbordone, Greg Simitian and William Zeng

No 20250227b, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Our previous post identified strong global components in the slow-moving and persistent dynamics of headline consumer price index (CPI) inflation in the U.S. and abroad. We labeled these global components as the Global Inflation Trend (GIT), the Core Goods Global Inflation Trend (CG-GIT) and the Food & Energy Global Inflation Trend (FE-GIT). In this post we offer a narrative of the drivers of these global inflation trends in terms of shocks that induce a trade-off for monetary policy, versus those that do not. We show that most of the surge in the persistent component of inflation across countries is accounted for by global supply shocks—that is, shocks that induce a trade-off for central banks between their objectives of output and inflation stabilization. Global demand shocks have become more prevalent since 2022. However, had central banks tried to fully offset the inflationary pressures due to sustained demand, this would have resulted in a much more severe global economic contraction.

Keywords: global inflation; persistence; Multivariate Core Trend (MCT); supply chains; demand shocks (search for similar items in EconPapers)
JEL-codes: E31 E37 E52 F34 (search for similar items in EconPapers)
Date: 2025-02-27
New Economics Papers: this item is included in nep-cba and nep-mon
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