{
  "title": "Inflation’s Rise and Fall",
  "sourceUrl": "https://www.imf.org/en/publications/fandd/issues/2024/09/inflations-rise-and-fall-dao-leigh-mishra",
  "canonical": "https://www.imf.org/en/publications/fandd/issues/2024/09/inflations-rise-and-fall-dao-leigh-mishra",
  "overlayPath": "/en/publications/fandd/issues/2024/09/inflations-rise-and-fall-dao-leigh-mishra/index.md",
  "summary": "Recent price swings reflected largely energy- and supply-related shocks rather than macroeconomic overheating",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Topic: Recent global inflation surge and subsequent decline.\n- Timeframe emphasized: inflation began rising in 2021; became acute by 2022; fall in headline inflation observed after widespread monetary tightening; sample ends in March 2024.\n- Core assertion: Recent price swings reflected largely energy- and supply-related shocks rather than macroeconomic overheating."
    },
    {
      "heading": "Methodology",
      "content": "- Sample: 21 advanced and emerging market economies.\n- Decomposition approach:\n  - Headline consumer price inflation = underlying (core) inflation + headline shocks (deviations of headline from core inflation).\n  - Core inflation explained by long-term inflation expectations and broad measures of macroeconomic slack (unemployment rate, output gap, ratio of vacancies to unemployment).\n  - Headline shocks explained by large price changes in particular industries (food, energy, shipping) and measures of supply-chain disruptions.\n  - Model allows for pass-through over time from industry price shocks to core inflation via effects on wages and production costs."
    },
    {
      "heading": "Key findings",
      "content": "- Primary drivers:\n  - Headline shocks and their pass-through into core inflation account for most of the rise and fall of inflation across the sample.\n  - Broader measures of macroeconomic slack and changes in longer-term inflation expectations generally contribute little.\n- Global vs local drivers:\n  - Inflation’s rise and fall reflected primarily global drivers (notably energy and food prices), but local circumstances mattered.\n  - Differences in local energy price policies, including subsidies, explain cross-country variation in the contribution of energy price shocks (example: France).\n- United States exception:\n  - The United States is a significant exception: the contribution of broad macroeconomic tightness to inflation remains greater than in other economies despite the significant cooling of the labor market since early 2023.\n  - The fall in US headline inflation since February 2023 reflects equally the cooling of the broader economy and the fading pass-through from earlier headline shocks.\n  - Since March 2024 (sample end), US labor market conditions have further moderated, which should help inflation return to target.\n- Inflation expectations and monetary policy:\n  - Long-term inflation expectations remained well anchored throughout the period.\n  - This suggests central bank credibility helped prevent wage-price spirals.\n  - Global tightening of monetary policy may also have helped bring down global demand and hence energy prices."
    },
    {
      "heading": "Country examples and policy-relevant observations",
      "content": "- France:\n  - Large price-suppressing fiscal measures and a relatively small contribution of energy to headline inflation shocks.\n- Energy shocks:\n  - The surge in energy and food prices, intensified by Russia’s invasion of Ukraine, triggered an energy crisis akin to the 1970s oil shocks.\n  - Energy shocks and their pass-through, as well as their reversal, account for the bulk of the rise and fall of inflation, without the need for a deep economic slowdown."
    },
    {
      "heading": "Implications for policy",
      "content": "- Monetary policy:\n  - Maintaining credibility and anchoring long-term inflation expectations is key to preventing wage-price spirals.\n  - Rapid and synchronized monetary tightening contributed to the swift decline in inflation.\n- Fiscal and energy-price policies:\n  - Local energy price policies, including subsidies, materially affect how energy shocks transmit to headline inflation.\n  - Price-suppressing fiscal measures can reduce the contribution of energy shocks to headline inflation.\n- Monitoring pass-through:\n  - Policymakers should monitor the pass-through from headline shocks to core inflation (via wages and production costs) when assessing inflation persistence and appropriate policy responses.\n\nSource: \"Inflation’s Rise and Fall\" — MAI CHI DAO, Prachi Mishra, DANIEL LEIGH; F&D Magazine; September 2024.\n\n---\n\n Content in this bundle\n\n- Inflation’s Rise and Fall\n  - Inflation’s Rise and Fall (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Inflation’s Rise and Fall (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/fandd/issues/2024/09/inflations-rise-and-fall-dao-leigh-mishra"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/fandd/issues/2024/09/inflations-rise-and-fall-dao-leigh-mishra/index.md)",
    "[Structured JSON version](/en/publications/fandd/issues/2024/09/inflations-rise-and-fall-dao-leigh-mishra/index.json)",
    "[Bundle manifest](/en/publications/fandd/issues/2024/09/inflations-rise-and-fall-dao-leigh-mishra/bundle-manifest.json)",
    "Authors: MAI CHI DAO, Prachi Mishra, DANIEL LEIGH",
    "Published: September 3, 2024",
    "Topic: Recent global inflation surge and subsequent decline.",
    "Timeframe emphasized: inflation began rising in 2021; became acute by 2022; fall in headline inflation observed after widespread monetary tightening; sample ends in March 2024.",
    "Core assertion: Recent price swings reflected largely energy- and supply-related shocks rather than macroeconomic overheating.",
    "Sample: 21 advanced and emerging market economies.",
    "Decomposition approach:",
    "Primary drivers:",
    "Global vs local drivers:",
    "United States exception:",
    "Inflation expectations and monetary policy:",
    "France:",
    "Energy shocks:",
    "Monetary policy:",
    "Fiscal and energy-price policies:",
    "Monitoring pass-through:",
    "**Inflation’s Rise and Fall**"
  ],
  "related": [
    {
      "title": "Inflation’s Rise and Fall",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2024/09/mishra.pdf",
      "summary": {
        "path": "/-/media/files/publications/fandd/article/2024/09/mishra.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/fandd/article/2024/09/mishra.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/fandd/issues/2024/09/inflations-rise-and-fall-dao-leigh-mishra/index.md",
    "json": "/en/publications/fandd/issues/2024/09/inflations-rise-and-fall-dao-leigh-mishra/index.json",
    "bundleManifest": "/en/publications/fandd/issues/2024/09/inflations-rise-and-fall-dao-leigh-mishra/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-15T19:26:59.657Z"
}