Inflation
Inflation is an upsurge in the level of prices of the goods and services in an economy, which leads to a decline in the purchasing power of the currency’s value. It is calculated as the rate of change in prices in a specific period of time. The consumer price index (CPI) is one of the most common indicators for measuring inflation in an economy.
Global Inflation
Global inflation is a measure of the average annual rate of growth increase in national prices across all countries. It can be calculated using various methods including simple average, weighted average, and median price change. GlobalData forecasts that the world economy will grow at a slower pace of 3.5% in 2022 following a 5.9% growth in 2021. On the other hand, the global inflation rate is projected to rise to 6.5% in 2022 from 3.5% in the previous year due to supply chain disruption amid the Ukraine-Russia war.
Consumer Price Inflation in the US
Between 2015-2021, the consumer price inflation in the US was highest in the year 2021, reaching 4.2%. The US reported a sharp decline in the inflation rate between 2018-2020.
The inflation rate in 2021, shot up due to supply chain constraints and the resurgence of COVID-19 in H1 2021. Moreover, with high energy prices and supply chain constraints at the end of 2021, inflationary pressure increased. The Fed is expected to follow a tighter monetary policy to tame inflation in 2022.
According to the Labor Department, the overall inflation rate rose to 7.1% in December 2021, which was the highest in the last four decades.
Persistent high inflation rate along with an increase in the number of COVID-19 cases is likely to cause the US economic growth to slowdown in early 2022. The Fed Reserve is expected to adopt a tighter monetary policy by raising borrowing costs to tackle the inflation rate. Also, the ongoing withdrawal of fiscal support will continue to dampen the economic growth prospects. Against this backdrop, GlobalData forecasts economic growth to increase to 7.11% in 2022.
Factors that Impact Inflation Rate
Some of the major factors affecting consumer prices are government policies, money supply, consumer spending, employment levels, high disposable income, and wage levels. Interest rates can also have a significant impact on spending on consumer goods.
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