March 7, 2026

Why Inflation Around the World Just Won’t Go Away

Adebayo June 21, 2023
Why Inflation Around the World Just Won't Go Away

Why Inflation Around the World Just Won't Go Away

Inflation, the sustained increase in the general price level of goods and services, has become a persistent concern for economies around the world. Inflation has been a major concern for policymakers around the world in recent months. In the United States, the Consumer Price Index (CPI) rose by 8.6% in May, the highest level in over 40 years. In Europe, inflation is also running high, with the eurozone CPI rising by 8.1% in May.

Central bankers in wealthy nations are substantially raising their projections for inflation, planning additional rate hikes, and cautioning investors that interest rates will likely stay high for some time. Some people have made arrangements to keep interest rates unchanged. Despite numerous efforts by central banks and policymakers to rein it in, inflation rates have remained stubbornly high.

After battling rising inflation for about a year, policymakers are still far from being able to claim victory. Even when the dizzying gains in oil and food prices from the previous year recede from view, underlying inflation in the U.S. and Europe is still at 5% or higher. Wage growth has reached a high level on both sides of the Atlantic and shows few indications of continuing to drop.

Central banks around the world have been raising interest rates in an effort to cool inflation. However, it is likely that inflation will remain elevated for some time. This is because the factors that are driving inflation are not going away anytime soon.

The war in Ukraine is also likely to continue for some time, and it is unclear how it will ultimately be resolved.

There are a number of factors that have contributed to the rise in inflation. One is the COVID-19 pandemic, which has disrupted supply chains and led to higher prices for goods and services. Another factor is the war in Ukraine, which has further disrupted energy markets and pushed up prices for oil and gas.

As a result, it is likely that inflation will remain above central banks’ targets for the rest of 2022 and into 2023. This could lead to a number of challenges, including lower economic growth and higher unemployment.

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What can be done to address inflation?

There are a number of things that can be done to address inflation. One is for central banks to continue to raise interest rates. This will make it more expensive for businesses to borrow money, which will help to slow down economic growth and bring down inflation.

Increasing the supply of goods and services is a further option. The possibility of lowering tariffs and other trade restrictions exists. It could also be accomplished by funding infrastructure improvements and other initiatives that will increase production.

Central banks face the challenge of balancing their dual mandate of maintaining price stability and promoting economic growth. Their efforts to control inflation can be hampered by political pressures, especially when governments prioritize short-term growth over long-term stability. Central bank independence is crucial in implementing effective monetary policies to combat inflation.

Finally, governments can provide targeted assistance to those who are most affected by inflation. This could include providing subsidies for food and energy, or increasing the minimum wage.

To mitigate the economic fallout of the pandemic, governments worldwide implemented expansive fiscal policies and central banks resorted to aggressive monetary easing. These measures injected massive amounts of liquidity into the financial system, leading to a surge in consumer spending and asset prices.

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