The COVID-19 pandemic and other global events caused numerous market problems that may have contributed to inflation. Inflation is typically measured using the Consumer Price Index (CPI). The index tracks prices for consumer goods and services and reflects overall purchasing power of consumers. But price increases can also occur on the supply side, for example when a natural disaster or high oil prices increase production costs for producers of goods and services. This can lead to “cost push” inflation. Similarly, increased demand for products can lead to a rise in the Producer Price Index (PPI) which is tracked by companies and reflects the average selling prices they receive for their goods and services. When these PPI increases get passed on to consumers, they can lead to “demand pull” inflation.
Some experts believe that the COVID-19 pandemic and related events caused a surge in inflation because it weakened consumers’ buying power. Others think that the COVID-19 pandemic caused disruptions to the global supply chain, resulting in shortages of certain goods and higher prices. Some economists believe that government stimulus programs increased the amount of money available to both consumers and businesses, which helped drive up spending.
Finally, some analysts believe that the COVID-19 pandemic led to a jump in job openings and unemployment, which drove up wages and prices. These factors are all important, and the truth is that economic data hardly allows us to distinguish between them. Moreover, even if we could tell the difference between those different perspectives, it is possible that all of them played some role in the recent inflation surge.