Inflation is a concern for many these days, so the FRED Blog looks at what we know and can show about this economic phenomenon. Inflation has complex roots and is treated with policies that have effects with notoriously long and variable lags. The complexity lies in the fact that inflation can have many different causes. This current bout of inflation has been attributed to excess aggregate demand due to pandemic payouts to households, low interest rates, increasing public deficits, supply chain issues, the invasion of Ukraine, and more.

None of these causes is unique to a particular country, and all seem to apply to a wide range of industrialized countries. So, it should be no surprise that the FRED graph above depicts a similar pattern for inflation across the 7 industrialized countries selected. (We cheated a little by excluding Japan, which has had very low inflation, if not deflation, for much of the period.)

This similarity makes monetary policy a bit more difficult: If there is so much co-movement, is it because all economies face the same inflationary shocks or is it because inflation is being imported and exported across countries?

We can answer such questions only in hindsight, but we can look with more detail at the past five years and how inflation has risen. Our second FRED graph shows that the U.S. was clearly the first to experience higher inflation and also has been the first to see it abating a bit. Does this mean that inflation started in the U.S. and then was exported elsewhere? That certainly cannot be the whole story, because inflation did not happen ex nihilo: As mentioned above, there are many common reasons for rising inflation. And inflation clearly doesn’t have only a monetary origin: Note the stark differences within the euro area, which all falls under the monetary policy of the ECB: Yet, France runs at least 2% below the others and more than 4% below Spain. There is simply no simple story to inflation.

How these graphs were created: Search FRED for US CPI, specifically the OECD series in growth rates, as we want to use the same source for all series. Click “Edit Graph,” open the “Add Line” tab, and successively add the other series. You have the first graph. For the second, take the first and restrict the sample period to the past five years.

Suggested by Christian Zimmermann.