Significant events such as Russia's invasion of Ukraine and the impact on energy and food markets greatly affected inflation, leading central banks to respond with novel measures such as interest rate hikes.
After pandemic disruptions and unusual goods spending, demand surged for essentials like energy, clashing with limited supply and leading to inflation.
Once lockdowns ended and citizens gradually returned to normal spending habits, demand for essential items like energy came roaring back, colliding with strained supply. That’s not to say interest rate rises weren’t required. Signalling an inflation intolerance to financial markets, households and businesses helps retain credibility. Quantitative easing probably lasted too long and was too generous.Everything changed in February 2022. Russia’s full-scale invasion of Ukraine could not have been foreseen. Its ramifications in energy and food markets were huge.
Those on Threadneedle Street were spurred into such action not by inflation but by the haphazard tax and spending decisions of Liz Truss during her premiership. FOMC officials were also grappling with an inflation problem that was more demand driven, a factor that monetary policy is better at influencing.
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