- Inflation is tearing through the economy, but the US is far from alone.
- The invasion of Ukraine and tangled supply chains are lifting prices around the world.
- Other central banks are echoing the Fed's rate hikes as they struggle to cool inflation.
The coronavirus outbreak began as a regional epidemic before expanding to a global crisis. Inflation is trending the same way.
Americans are fed up practically everywhere they spend money. Gas prices sit near record highs, food costs are surging, and housing is getting more expensive by the month. Lawmakers — particularly Republicans — have lambasted the Federal Reserve for allowing inflation to hit 41-year highs, arguing the central bank should've started raising interest rates much earlier.
A glance abroad, however, shows the problem isn't limited to the US. Inflation is running historically hot around the world as economies grapple with a slew of global pressures. Prices in the European Union are up roughly 8.1%, just slightly below the US's 8.6% year-over-year inflation rate. Price growth is even faster in the UK, with its one-year inflation gauge hitting 9.1% in May. Even Japan is enduring higher-than-usual inflation, bucking a decades-long trend of stagnant price growth.
The pervasiveness of elevated inflation is due, in large part, to the global pressures driving prices higher. Russia's invasion of Ukraine is among the most powerful. The conflict immediately lifted prices for commodities including natural gas, oil, grain, and fertilizer. Follow-up sanctions against Russia further hampered global supply and lifted prices higher still.
The shock has since affected several sectors. Airfares are sharply higher due to boosted energy prices. While pricier grain has lifted costs at the grocery store, higher fertilizer prices are likely to keep food inflation high into the future. Elevated oil and natural gas prices are also boosting costs for manufacturing and transportation, further ensnaring consumers.
The effects are markedly worse in the UK and Europe than in the US, as the region is much more reliant on Russian energy. Poorer nations are also likely to suffer more from the uptick in food prices, as they are less able to absorb higher costs than advanced economies.
The supply-chain tangle propping up inflation is also an international issue. Snags first emerged in the middle of 2021 as shortages of semiconductors, batteries, and medicine slammed various production lines. The mess intensified in the fall as new coronavirus variants prompted factory shutdowns in China. Critical manufacturing hubs were sidelined just as holiday-season demand was ramping up, further exacerbating the disconnect fueling inflation.
"What did we get wrong? That really was looking at these supply-side issues and believing they would be solved relatively quickly," Fed Chair Jerome Powell said Wednesday at a forum hosted by the European Central Bank.
In the US, the supply-chain pressures showed up as intense port backlogs, truck driver shortages, and a rise in out-of-stock warnings. Other economies faced similar fallout. Europe struggled with port congestion and shipping delays as well. Pricier ship fuel boosted freight costs around the world. Shortages of containers also hobbled trade in China, the EU, and Australia.
"I don't think that we're going to go back to that environment of low inflation," Christine Lagarde, president of the ECB, said at the Wednesday forum.
Some factors boosting inflation are unique to the US. Decades of corporate consolidation have augmented companies' ability to pass higher costs on to consumers. That's led to companies charging record-high markups and raking in record profits throughout 2021, according to researchers at the Roosevelt Institute.
The US government was also among the most generous with its early pandemic stimulus. Though the aid supercharged the economic rebound, it likely widened the gap between supply and demand.
Yet other countries had their own unique issues that pushed inflation higher. The UK's withdrawal from the EU severed key trade relationships years before the pandemic and saddled British households with higher inflation than their European peers, according to a study from the Peterson Institute for International Economics. Several years of negative interest rates left Japan with an economy much more susceptible to an inflation shock.
And while the Fed continues to catch flak for its response to sky-high inflation, central banks abroad are acting similarly. The European Central bank is poised to raise its benchmark interest rate in July for the first time since 2011 to cool surging prices. The Bank of England hiked its own key rate by 0.25 percentage points on June 16, marking a fifth straight increase. Canada's central bank approved a second straight half-point hike on June 1 and said it would "act more forcefully" if inflation didn't show signs of slowing.
The price-growth problem is a global one. The fight against it is just as universal.