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The fading of the inflation tsunami: Causes and outlooks

In: CNB Global Economic Outlook - January 2024

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  • Lubos Komarek
  • Petr Polak

Abstract

The early 2020s saw a series of long-unseen shocks in rapid succession that caught us off guard (the Covid-19 pandemic, the energy and security crises related to Russia's attack on Ukraine). They resulted in an unprecedented surge in prices. On the supply side, the main causes of this surge include problems in global supply chains and massive increases and subsequent volatility in energy and commodity prices. Price increases were also stimulated by the demand side of the economy due to the shift in demand from non-tradables (part of the closed services sector) to tradables (electronics, for example). Demand stimuli were supported not only by a generous and relatively broad-based expansionary fiscal policy, but also loose monetary policy. Firms passed the price shock on to their customers in the form of higher prices and consumer sentiment deteriorated due to high inflation. This article sets out to give a brief summary of the factors underlying the unusually strong surge in inflation and, using the available data on firms' pricing behaviour, demonstrate that the subsiding wave of inflation should really be a thing of the past unless another external shock hits in the near future.

Suggested Citation

  • Lubos Komarek & Petr Polak, 2024. "The fading of the inflation tsunami: Causes and outlooks," Occasional Publications - Chapters in Edited Volumes, in: CNB Global Economic Outlook - January 2024, pages 15-20, Czech National Bank.
  • Handle: RePEc:cnb:ocpubc:geo2024/1
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    File URL: https://www.cnb.cz/export/sites/cnb/en/monetary-policy/.galleries/geo/geo_2024/gev_2024_01_en.pdf
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    References listed on IDEAS

    as
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    2. Luis J. Álvarez & Emmanuel Dhyne & Marco Hoeberichts & Claudia Kwapil & Hervé Le Bihan & Patrick Lünnemann & Fernando Martins & Roberto Sabbatini & Harald Stahl & Philip Vermeulen & Jouko Vilmunen, 2006. "Sticky Prices in the Euro Area: A Summary of New Micro-Evidence," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 575-584, 04-05.
    3. Philip Vermeulen & Daniel A. Dias & Maarten Dossche & Erwan Gautier & Ignacio Hernando & Roberto Sabbatini & Harald Stahl, 2012. "Price Setting in the Euro Area: Some Stylized Facts from Individual Producer Price Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1631-1650, December.
    4. Oxana Babecka Kucharcukova & Jan Bruha & Petr Kral & Martin Motl & Jaromir Tonner, 2022. "Assessment of the Nature of the Pandemic Shock: Implications for Monetary Policy," Research and Policy Notes 2022/01, Czech National Bank.
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