Inflation: why the world should keep calm and carry on
- The price distortions caused by the pandemic’s shutdowns, lockdowns and furloughs will eventually flatten out
- The world is simply moving from a state of near deflation towards higher inflation, as price setters make up for lost time
It’s transitory and the distortions caused by the pandemic’s shutdowns, lockdowns and furloughs will eventually flatten out. After the tough times the world has been through in the past 15 months, getting fired up about future inflation risks is a storm in a teacup.
The Organisation for Economic Cooperation and Development reckons output in major G20 nations has already rebounded to pre-crisis levels in the first quarter, and it is probably a similar story for global prices. The world is moving from a state of near deflation last year towards higher inflation in 2021, thanks to base effects and with price-setters making up for lost time due to the pandemic.
As long as demand and supply conditions are not abnormally out of sync, in normal business cycles, when inflation goes up, it generally tends to steady again reasonably quickly. It’s been the experience of the global economy this millennium as world consumer price inflation has maintained a fairly stable profile, averaging 3.8 per cent since 2000.
