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Supply and Demand Drivers of Global Inflation Trends

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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.

Suggested Citation

  • Ozge Akinci & Martín Almuzara & Silvia Miranda-Agrippino & Ramya Nallamotu & Argia M. Sbordone & Greg Simitian & William Zeng, 2025. "Supply and Demand Drivers of Global Inflation Trends," Liberty Street Economics 20250227b, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:99630
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    File URL: https://libertystreeteconomics.newyorkfed.org/2025/02/supply-and-demand-drivers-of-global-inflation-trends/
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    More about this item

    Keywords

    global inflation; persistence; Multivariate Core Trend (MCT); supply chains; demand shocks;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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