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The trinity of COVID era inflation in G7 economies

Author

Listed:
  • Joseph E. Gagnon

    (Peterson Institute for International Economics)

  • Asher Rose

    (Peterson Institute for International Economics)

Abstract

COVID era inflation was driven by a unique combination of three shocks: First, a plethora of pandemic-related shifts in demand patterns and disruptions to supply caused prices of consumer durable goods to skyrocket. Second, the Ukraine war caused the largest global commodity price surge in 40 years, which mainly affected prices of nondurable goods such as food and gasoline. Third, strong monetary and fiscal responses to the pandemic recession caused labor markets to tighten, pushing up prices of services. This paper estimates models of the components of consumer prices in each G7 economy in order to document the transmission of these shocks. The first two shocks had run their course by 2023, enabling overall inflation to decline sharply from its 2022 peak. But labor markets remained at least moderately tight in most G7 economies in 2024, and services inflation remained noticeably higher than its pre-pandemic level.

Suggested Citation

  • Joseph E. Gagnon & Asher Rose, 2024. "The trinity of COVID era inflation in G7 economies," Working Paper Series WP24-21, Peterson Institute for International Economics.
    • Handle: RePEc:iie:wpaper:wp24-21
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    File URL: https://www.piie.com/publications/working-papers/2024/trinity-covid-era-inflation-g7-economies
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    More about this item

    Keywords

    durable goods; nondurable goods; services; pandemic inflation;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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