Unlike some previous inflationary waves, the current inflation occurred under the strong influence of problems on the supply side. This huge pressure on costs found fertile ground in the most developed economies, into which massive amounts of money had already been pumped
The phenomenon of inflation has returned to the world’s economy after a break of almost half a century. It hit the world economy at the global level in 2021, and is linked to both the covid-19 pandemic and unresolved issues that have persisted since the global financial crisis of 2008. The struggle against the crisis was focused on the stabilising of the financial system and inflation was low. The struggle to overcome the crisis boiled down to pumping in large amounts of money. The global financial system survived that crisis, but debts grew, and the dragon of inflation was lurking around the corner. In contrast to the previous major inflationary wave, which hit the U.S. in the 1960s and ‘70s (known as The Great Inflation), today’s inflation is of a different character.
Inflation can take three forms: cost inflation, demand inflation and structural inflation. The Great Inflation of the ‘60s and ‘70s, with the abandoning of the Bretton Woods agreement, and alongside the energy crisis, was primarily a case of demand inflation, with elements of cost inflation.
The current inflation under covid-19 differs completely from the aforementioned inflation, because it emerged under the strong influence of supply-side problems due to the pandemic disrupting supply chains. With the gradual re-opening during 2021, shortages of numerous inputs and energy sources occurred, which caused a sharp rise in prices, of everything from microchips for cars and electronics to energy sources. This huge pressure on costs found fertile ground in the most developed economies, into which huge amounts of money have already been pumped continuously since the crisis of 2008, and particularly during the pandemic of 2020 and 2021.
The leading central banks still aren’t seeking to raise interest rates, with the exception of the Bank Of England, as they don’t want to slow down growth in the process of recovering from 2021’s gdp falls
This all led to inflation rising in the most developed economies, which was unthinkable during the last half a century and which start from around 7%, for example in the United States and Germany, and which have an upward trajectory. Meanwhile, the leading central banks still aren’t seeking to raise interest rates, with the exception of the Bank of England, because they don’t want to slow down growth in the process of recovering from the falling GDP experienced during 2021.
Serbia’s inflation rate in 2021 was 7.9%, expressed in year-on-year terms, and 4.0% as an annual average rate. Three-quarters of this hike in prices relates to food and energy prices. The high year-on-year growth in food prices is a consequence of several factors: rising food prices worldwide, drought and higher production costs, as well as these prices being extremely low in 2020, due to falling demand. Inflation in Serbia has a high external component. As year-on-year core inflation stood at 3.5%, thanks to a stable exchange rate, and as inflation expectations are anchored at around 3%, inflation can be expected to most likely continue to fluctuate at around the level from December 2021 during the first quarter of this year, while a gradual decline is expected from the second quarter, with a return to the targeted limits during the third quarter of 2022.
