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1. 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

2. The Trinity of COVID Era Inflation in G7 Economies

Author:
Joseph E. Gagnon and Asher Rose
Publication Date:
12-2024
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
COVID era inflation was driven by a unique combination of three shocks: First, a plethora of pandemic-related shifts in demand patterns and disruptions to supply caused prices of consumer durable goods to skyrocket. Second, the Ukraine war caused the largest global commodity price surge in 40 years, which mainly affected prices of nondurable goods such as food and gasoline. Third, strong monetary and fiscal responses to the pandemic recession caused labor markets to tighten, pushing up prices of services. This paper estimates models of the components of consumer prices in each G7 economy in order to document the transmission of these shocks. The first two shocks had run their course by 2023, enabling overall inflation to decline sharply from its 2022 peak. But labor markets remained at least moderately tight in most G7 economies in 2024, and services inflation remained noticeably higher than its pre-pandemic level.
Topic:
Economy, Inflation, G7, COVID-19, and Goods and Services
Political Geography:
Global Focus

3. The Economic Impact of China PNTR Repeal

Author:
David Schockenhoff and Michael Kleiman
Publication Date:
11-2023
Content Type:
Special Report
Institution:
Oxford Economics
Abstract:
As scepticism towards China is rising among policymakers, businesses grow more concerned about the potential economic fallout from an escalation in US-China tariff policy. Oxford Economics was commissioned by the US-China Business Council (USCBC) to help inform the policymaking process by examining two scenarios that could materialize if China’s Permanent Normalized Trade Relations (PNTR) status was revoked – including the increase of US tariffs on Chinese goods to column 2 rates as well as a Chinese retaliation imposing pre-WTO rates on US goods. Our analysis incorporates state-of-the art trade and economic models, including the Oxford Economics GEM, and finds that the US could lose up to $1.9trn in output over the five-year period following a China PNTR repeal. This is our third study for USCBC after examining the impact of the US-China relationship and associated scenarios in two previous reports (2017 and 2021).
Topic:
Economics, Politics, Bilateral Relations, Regulation, Tariffs, Trade, Supply Chains, Policymaking, Decoupling, and Goods and Services
Political Geography:
China, Asia, North America, and United States of America