It’s always dangerous to declare victory in a war against inflation. But the surge in prices that started after Covid hit in 2020 and got fresh momentum from the 2022 Russian invasion of Ukraine has now very definitely moderated. The production line for postmortems of the great inflation and lessons for next time has been humming along for more than a year.
Many focus on whether central banks were skilful or got lucky. But there are also morals for industrial and trade policy. The evidence suggests the case for widespread government intervention in a value chain just because it was under strain during the twin Covid-Ukraine crises remains weak.
First, let’s define exactly what we mean. Government value chain intervention can make sense in areas involving genuine security threats especially related to geopolitics. These include the supply of critical inputs and investing in high-end sensitive technology. But it’s more doubtful whether the everyday plumbing of world trade — ports, distribution centres, the manufacture of intermediate inputs — needs fixing.
Conclusions about the causes of the great inflation are highly sensitive to how you set the model up. But there are some agreed salient features. One, a massive Covid-related surge in consumer demand, particularly for durable goods, driving their prices higher. Two, graphic examples of supply chain problems, including congestion in US ports and shortages of semiconductors. Three, energy and food price shocks after the Ukraine invasion, particularly in Europe.