Inflation is a key economic indicator, reflecting changes in prices of commodities and necessities. Inflation can have positive effects when it is sparked by higher demand for goods and services, which can spur companies to increase production and hire more workers to meet this demand, leading to rising wages and prices of those goods and services. However, inflation also harms people saving money or borrowing at fixed interest rates because their cash deposits lose value and their loans lose purchasing power as prices rise.
After declining in the early stages of the COVID-19 pandemic, global inflation spiked in 2021 and 2022. Some economists thought this surge would be temporary, with prices dropping as supply shortages were addressed and people regained confidence in the availability of essential goods and services.
As the price of oil climbed and transportation costs increased, companies’ production costs rose, which led them to pass those costs on to consumers in the form of higher prices. Others believed that the spike in prices could also be driven by higher wages, as workers sought to bargain for better pay.
Economists use a variety of tools to measure inflation, including measuring the prices of individual products over time. However, analyzing large-scale changes in prices is more difficult. One way to do this is by looking at the components that go into a specific price index. For example, a combination of factors might explain why food and energy prices are rising, but the impact of each component is different for each country.