Inflation Is Becoming A Global Phenomenon

A global phenomenon

- Shri V. P. Nandakumar

The sharp fall in petroleum prices in 2020 along with a temporary reduction of value-added tax (VAT) had lowered prices during the year. Later, the introduction of a CO2 pricing in the transport and housing sectors at the beginning of 2021 (a charge of 25 euros, equivalent to US$ 28, per tonne of carbon dioxide emitted) and sharply higher energy prices (up 22.1 per cent year-on-year in November) added to the inflationary pressures.

The US consumer price index rose 6.8% in November 2021 year on year, the fastest pace of increase since 1982, and the sixth straight month in which inflation topped 5%. Regular readers of this magazine may recall that in the August 2021 issue, my article titled “The US has an inflation problem” had dealt extensively with the subject of rising inflation in the US following the pandemic. In the five or six months since, the problem has become even more acute. In December 2021, responding to the high inflation, the US Federal Reserve announced a faster taper of its bond buying programme which has been injecting $120 billion of liquidity every month since June 2020. Bond purchases will now be reduced by $30 billion each month, which will end all fresh bond purchases by March 2022. The accelerated timetable puts the Fed on course to start raising interest rates in the first half of 2022.