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The Nature of the Inflationary Surprise in Europe and the USA

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  • Paula Bejarano Carbo

Abstract

This paper leverages insights from data and economic theory in order to construct a narrative account of how the nature of inflation has evolved over time in the euro area, United Kingdom and United States since the onset of the Covid-19 pandemic. To this end, I decompose the recent 'inflationary surge episode' into four periods: The Covid shock period (2020 Q1 – 2020 Q2), characterised by joint a negative demand and supply shock; the economic reopening period (2020 Q3 – 2021 Q4), characterised by conflicting positive demand and negative supply shocks; the post-reopening period (2022 Q1 – 2023 Q1), also characterised by conflicting positive demand and negative supply shocks, where the latter is driven by an exogenous increase in energy prices; and the post-energy shock period (2023 Q2 – present), characterised by falling consumer price index (CPI) inflation alongside still-elevated and broad-based underlying inflationary pressures. Having established this 'inflation story', I conclude with some brief comments on the European Central Bank, Bank of England and Federal Reserve monetary policy responses during this time.

Suggested Citation

  • Paula Bejarano Carbo, 2024. "The Nature of the Inflationary Surprise in Europe and the USA," National Institute of Economic and Social Research (NIESR) Discussion Papers 554, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:554
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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