Economics: What have we learnt about inflation?

Taking stock of the inflation shock

We are now two years into this inflationary episode, and it remains uncertain just how far inflation will fall over the coming year. We thought this was a good opportunity to take stock of the lessons learnt from this period and what they imply about the future.

Lessons learnt, implications for the future 

We draw seven lessons, including the role that labour costs have played in driving prices higher, whether it fits the typical pattern of a demand shock, and about the applicability of a single framing across all of the major economies. 

Inflation as a distributional conflict

The factors sustaining inflation could differ from those that first caused it. Inflation is increasingly being cast as a distributional conflict. Workers and firms are resisting a squeeze to real incomes. This behaviour raises doubts about how far inflation will fall.