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1. A Tough Opponent for Trump: Inflation

Author:
Matteo Bursi
Publication Date:
01-2025
Content Type:
Commentary and Analysis
Institution:
Istituto Affari Internazionali
Abstract:
According to several pre-election polls, the economy was perceived by many US voters as the key topic in deciding whether to vote Democratic or Republican in the 2024 presidential elections.[1] During Joe Biden’s administration, the US GDP grew steadily and unemployment reached very low levels. Nevertheless, for the first time since 2004, the Democratic Party lost the presidency, the popular vote, the House of Representatives and the Senate. This seemingly paradoxical situation, according to some commentators, finds an explanation in the issue of inflation.[2] From this perspective, a significant number of Americans reportedly voted for Donald Trump due to the sharp price increases experienced during the past four years, blaming the outgoing Democratic administration for failing to sufficiently protect the purchasing power of US citizens and businesses. During and after the election campaign, the tycoon has claimed that he can curb inflation, emphasising his plan to intensify the exploitation of domestic energy resources. This proposal – covered by one of the many executive orders signed by Trump upon taking office – could help contain price increases but is unlikely to be a definitive solution. Likewise, its effectiveness could be largely offset by inflationary pressures arising from other policies that the Republican politician has promised to implement.
Topic:
Domestic Politics, Economic Policy, Inflation, and Donald Trump
Political Geography:
North America and United States of America

2. Digital Data and Advanced AI for Richer Global Intelligence

Author:
Danielle Goldfarb
Publication Date:
02-2025
Content Type:
Special Report
Institution:
Centre for International Governance Innovation (CIGI)
Abstract:
From collecting millions of online price data to measure inflation, to assessing the economic impact of the COVID-19 pandemic on low-income workers, digital data sets can be used to benefit the public interest. Using these and other examples, this special report explores how digital data sets and advances in artificial intelligence (AI) can provide timely, transparent and detailed insights into global challenges. These experiments illustrate how governments and civil society analysts can reuse digital data to spot emerging problems, analyze specific group impacts, complement traditional metrics or verify data that may be manipulated. AI and data governance should extend beyond addressing harms. International institutions and governments need to actively steward digital data and AI tools to support a step change in our understanding of society’s biggest challenges.
Topic:
Economics, Inflation, Artificial Intelligence, and Data
Political Geography:
Global Focus

3. Why Did Inflation Rise and Fall So Rapidly? Lessons from the Korean War

Author:
Joseph Gagnon and Asher Rose
Publication Date:
01-2025
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The speed of both the rise and fall of US inflation in 2021–23 took many economists by surprise. This paper shows that the rise of COVID era inflation reflects three independent shocks: a plethora of pandemic-related shifts in demand patterns and supply disruptions; the largest commodity price surge in 40 years caused by the Ukraine war; and strong monetary and fiscal responses to the pandemic, which kept labor markets tight. This paper documents the transmission of these shocks through the main components of private consumption: durable goods, nondurable goods, and services. The rapid fall of inflation reflects the credibility of the Federal Reserve’s commitment to low inflation, something that was not apparent during the inflationary shocks of the 1970s but that was important during the Korean War inflation of 1950–51. Another similarity with the Korean War episode is the temporary surge in demand for durable goods.
Topic:
Economy, Inflation, Korean War, COVID-19, and Goods and Services
Political Geography:
Asia and South Korea

4. The Role of Long Histories of “Lived Experience” in the COVID-Era Inflationary Surge

Author:
Joseph E. Gagnon and Steven Kamin
Publication Date:
04-2025
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
A rough consensus has evolved around the causes of the COVID-era inflationary spike: the disruption in supply chains; the shift in demand from services to goods; the surge in commodity prices that followed Russia’s invasion of Ukraine; and the pandemic fiscal stimulus programs. In this paper, we highlight an additional factor influencing the incidence of pandemic inflation across countries—their long histories of “lived experience” with inflation. We show that more than half of the variation in inflation across countries during the 2020–23 period can be explained by their earlier levels of inflation. Even controlling for inflation in the 2016–19 period, countries with higher inflation in the 2000–2015 period had higher COVID-era inflation, and the effect of long-lagged inflation is both economically and statistically significant. These long histories of lived experience dominated other policy measures to control inflation, including inflation targets and central bank independence. The influence of long-lagged inflation history appears to be greatest during periods of heightened volatility; it was less important in explaining the cross-country pattern of inflation during the more tranquil period immediately preceding the pandemic.
Topic:
Economy, Inflation, COVID-19, and Supply Chains
Political Geography:
Global Focus

5. Lessons for the European Central Bank from the 2021–23 Inflationary Episode

Author:
Pablo Hernández de Cos
Publication Date:
05-2025
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
Since mid-2021, the euro area economy has gone through several shocks, leading to the highest inflation since the creation of the European Monetary Union. A forceful and persistent response from the European Central Bank, grounded in the monetary policy framework it agreed in 2021 ahead of the inflationary episode, has succeeded in bringing inflation down and delivering on the central bank’s price stability mandate. The framework will be reviewed in 2025, and it might conclude that there is no need for a drastic change. Nevertheless, this assessment should be compatible with identifying some areas for improvement. In particular, the 2021 review was primarily focused on the effective lower bound. The recent inflationary episode, together with high ongoing uncertainty, indicate that the articulation of monetary policy strategy frameworks should be robust to very different scenarios. Likely persistence of high levels of uncertainty over the next few years will also require an emphasis on flexibility to adapt to the magnitude, origin, and persistence of shocks. Unconditional forward guidance should be avoided. In addition, there might be a need to more clearly distinguish in the future, when possible, between quantitative easing for market functioning versus monetary stimulus, which could incentivize a careful assessment of the amount, duration, and structure of any asset purchase program. Communication also needs to be improved in relation to the level of uncertainty and its consequences for monetary policymaking with, for instance, greater use of scenarios and sensitivity analyses as appropriate. Improving forecasting/modeling tools, in particular when dealing with large supply shocks, and understanding the roles of different measures of inflation expectations should also be priorities.
Topic:
Monetary Policy, Inflation, and European Central Bank
Political Geography:
Europe

6. Twenty-five years of inflation-targeting in South Africa: Going from 6% to 3%?

Author:
Philippe Burger
Publication Date:
06-2025
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper proposes that the South African Reserve Bank should pursue a 3% inflation target, instead of the current 4.5% midpoint of a 3%-to-6% target range. Doing so may also result in lower inflation volatility, thereby reducing nominal exchange rate risk for investment and trade, and may thus support economic growth. Using a two-regime Markov-switching model, the analysis shows that since the global financial crisis, periods of higher inflation volatility are much shorter. Thus, inflation is relatively better anchored since the global financial crisis. But there are still shocks that coincide with periods of exchange rate volatility. Lastly, the analysis shows that the budget deficit/gross domestic product ratio, constraints on electricity supply, and administered prices contribute significantly to inflation, while the effect of real gross domestic product growth (as a demand variable) is limited. The analysis also argues that the sacrifice ratio, measuring the sacrifice of growth and employment that is required to reduce inflation, is of limited use once the potential role that other variables can play in the reduction of inflation and inflationary expectations is considered. The government has an especially significant role to play in supporting the South African Reserve Bank in lowering the inflation rate to an average of 3% by lowering the level and volatility of administered price inflation, reducing the budget deficit, and improving electricity supply.
Topic:
Budget, Investment, Inflation, Trade, and Deficit
Political Geography:
Africa and South Africa

7. The inflation surge in Europe

Author:
Patrick Honohan
Publication Date:
05-2024
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
For most of the decade before the COVID-19 pandemic, undershooting rather than overshooting had been the main inflation problem of the European Central Bank (ECB). During 2020, consumer prices in the euro area were falling; by the end of that year, average inflation since the introduction of the euro two decades earlier stood at only 1.6 percent per year. Things began to snowball in 2021. The 12-month inflation rate steadily accelerated. It reached double digits in the final quarter of 2022—more than twice the level it had ever reached since the euro’s introduction in 1999. Four striking features emerge from a review of the unexpected surge in European inflation since 2021: (1) The ECB’s monetary policy response lagged behind that of the US Federal Reserve, reflecting the more gradual evolution of inflation in the euro area and its distinct pattern of causes; (2) the range of inflation rates across different euro area countries has been unprecedented. This largely reflects the differential impact of war-related energy shocks (especially for natural gas piped from Russia) as well as the differential fiscal response by national governments partially insulating consumers from these shocks; (3) not all households were net losers from the inflation, with some benefiting from the fact that inflation reduced the real value of their indebtedness; and (4) the speed with which inflation was returning toward target during 2023 prompted concerns that the ECB’s monetary tightening might have been pushed too far, prolonging the output slowdown.
Topic:
Monetary Policy, European Union, Inflation, and COVID-19
Political Geography:
Europe

8. The influence of gasoline and food prices on consumer expectations and attitudes in the COVID era

Author:
Joanne Hsu
Publication Date:
05-2024
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
Food and gasoline prices are extremely salient to consumers, who regularly purchase these goods, and these prices are highly visible. The shared experience of purchasing food and gasoline makes it no surprise that those prices have been blamed for the relatively dismal consumer views of the economy in 2023 amid strong economic indicators, including slowing inflation, low unemployment, and robust growth. At the same time, consumer inflation expectations have eased during this past year. This Policy Brief investigates the role food and gasoline prices play in influencing consumer inflation expectations and economic sentiment, as measured on the University of Michigan Surveys of Consumers, and focuses on the COVID inflationary episode. The author finds that, although consumer sentiment now appears to be more sensitive to inflation than prior to the pandemic, inflation expectations do not. Even though inflation has waned, consumers still spontaneously comment on the negative impact of high prices on their lives. That said, these persistently negative perceptions about inflation have not translated into persistently high inflation expectations.
Topic:
Inflation, COVID-19, Consumer Behavior, and Cost of Living
Political Geography:
North America and United States of America

9. The state of financial knowledge in the European Union

Author:
Maria Demertzis, Luca Léry Moffat, Annamaria Lusardi, and Juan Mejino Lopez
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Only one in two individuals in the European Union, on average, is financially knowledgeable. In response to a 2023 survey containing five questions assessing basic financial knowledge, only half of the respondents answered at least three of the five questions correctly. This represents a low level of financial knowledge and an obstacle for individuals to invest in financial markets. The questions most often answered correctly by respondents measured understanding of inflation and the relationship between risk and return. By contrast, only one in five respondents answered a question on the relationship between interest rates and bond prices correctly. Regarding inflation, there is a large difference between the least and most educated respondents in terms of answering the relevant question correctly. Gaps in understanding the concept of inflation are also evident between the youngest (18-24) and oldest respondents (55+) and between the poorest and richest households. A gender gap is present in financial knowledge, with 18 percentage points more men than women answering at least three out of five questions correctly, on average in the EU. Those with greater financial knowledge are less financially fragile in that they can still cover their expenses if there is a sudden loss of income, and are more confident that they will have sufficient funds to sustain themselves during retirement. Countries with higher proportions of people who are financially knowledgeable have higher numbers of people who both save with and borrow from financial institutions, an indication that financial knowledge may improve financial inclusion. All EU countries have, or are in the process of putting together, a national financial literacy strategy. There is an urgent need to roll out these strategies, to monitor progress over time and to establish best practices. Particular attention needs to be given to how financial knowledge interacts with digital skills as financial services are increasingly digitalised. Financial literacy strategies should also help close gender and other gaps in knowledge among vulnerable groups, and should ensure that financial education starts early and in schools.
Topic:
European Union, Economy, Inflation, and Financial Literacy
Political Geography:
Europe

10. 3 International Climate Priorities for 2024

Author:
Anne Christianson, Trevor Sutton, and Frances Colon
Publication Date:
06-2024
Content Type:
Special Report
Institution:
Center for American Progress - CAP
Abstract:
As President Joe Biden’s first term draws to a close, his administration must deliver on three international climate policies to catalyze a 21st-century clean energy economy and avoid the worst impacts of climate change.
Topic:
Climate Change, Diplomacy, Economy, Inflation, Renewable Energy, Resilience, and Joe Biden
Political Geography:
Global Focus and United States of America