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Why Inflation Heats Up and Is So Hard to Cool Down


One of the biggest challenges facing the post-pandemic world is how to tame inflation. After governments spent freely to offset the economic fallout of the Covid-19 pandemic, prices began to climb at the fastest pace in decades and central banks embarked on the most aggressive and synchronized monetary policy tightening in 40 years. When prices surge, people can afford less, businesses struggle to control costs and, in extreme cases, political revolutions are born.

At the most basic level, inflation is an increase in overall prices in an economy over a period of time — monthly or annually, typically — and an accompanying decrease in purchasing power. One common way to measure it is by tracking the change in the cost of a basket of goods purchased by a typical household, including food, housing and basic services. Leading economists surveyed by the World Economic Forum in September warned that today’s rising prices will likely cause social unrest in low-income countries. The French Revolution was triggered, in part, by the rising price of bread.