According to a Pew Research Center survey conducted from April 25 to May 1, more than two years into the Covid pandemic, just 19 per cent of American adults rated the coronavirus outbreak as a very big problem for the country; however, 70 per cent of the Americans viewed inflation as a very big problem.

Inflation in the US hovers near a 40-year high, with an 8.3 per cent annual increase in April, slightly lower than the 8.5 per cent surge in March. Inflation has risen around the world, across major economies.

As food and energy prices spiralled, UK’s inflation also soared to a 40-year high of 9 per cent in the consumer price index in April — the highest since records began in their current form in 1989. The annual inflation rate in France was confirmed at 4.8 per cent in April, the highest since October 1985.

In India, the consumer price inflation in April at 7.79 per cent was the steepest rise since the 8.3 per cent recorded in May 2014. Even in Japan, figures indicate key consumer prices already rising by 2 per cent in April — outside tax hike years, that would be the fastest pace since September 2008. Has global inflation already reached its peak? Food prices are increasing at an unprecedented rate worldwide, triggered by two years of pandemic-induced disruptions and now the Russia-Ukraine war. And these were certainly on the cards. This huge inflation is mostly the result of the pandemic of the century.

Previous infections such as Black Death, SARS, Influenza H1N1, and Swine Flu had also caused huge economic impacts worldwide. For example, the US, and the world as a whole, experienced a short burst of inflation in 1918, driven by the Spanish Flu and World War I.

But Covid-19 is more contagious, and its ability to sustain on surfaces makes it more challenging to curb.

An IMF article of September 2020 by Ehsan Ebrahimy, Deniz Igan, and Soledad Martinez Peria studied the impact of Covid-19 on inflation, even at that early stage, and examined conceptually and wherever possible, empirically, the potential drivers and dynamics of inflation during the pandemic, distinguishing between the lockdown phase, characterised by restrictions in mobility and potentially significant supply and demand disruptions, and the reopening phase.

Then, an April 2021 written material of the White House, titled ‘Pandemic Prices: Assessing Inflation in the Months and Years Ahead’ by Jared Bernstein and Ernie Tedeschi stated: “The Covid-19 pandemic has caused an unconventional recession, and we do not expect the recovery will be typical either.”

These authors expected measured inflation to increase somewhat in the next several months, primarily due to three different temporary factors: base effects, supply chain disruptions, and pent-up demand, especially for services.

The war against Covid 

Covid-19 is certainly a pandemic of unique nature for various reasons. It is often treated as the ‘pandemic as war’ — national resources have been commandeered in the battle against an ‘invisible enemy’, driving government debt levels sharply higher around the world. The unprecedented worldwide lockdown impacted the world economy strongly.

And, of late, Russia’s Ukraine invasion made the situation simply worse. Covid-related stimulus spending, mainly in the form of discretionary handouts to households in major economies, along with pent up demand fuelling consumer spending, the surge in energy, food, non-food commodities, and input prices, supply constraints, disruption of global supply chains, and rising freight costs across the globe stoked global inflation.

But how much inflation can be attributed to a pandemic? And how much is due to war? In an article in March 2021, Kevin Daly and Rositsa D. Chankova of Goldman Sachs Global Economics Analyst used data extending to the Black Death in the 1300s up to the Hong Kong Flu of 1968-69 to compare inflation and government bond yield behaviour in the aftermath of the world’s 12 largest wars and 12 pandemics.

These authors showed that both inflation and bond yields typically rise in wartime but remain relatively stable during pandemics. They had some interesting findings though.

Although every such event is unique, history suggests high inflation and bond yields are not a natural consequence of pandemics. They observed that inflation has typically risen sharply both during and in the aftermath of major wars, with median inflation peaking at 8 per cent one year after the war has ended.

However, inflation has typically remained weak during pandemics (2-3 per cent) and declined in their aftermath, with median inflation falling below zero one year after the pandemic has ended and fluctuating close to zero for nine years after the pandemic has ended.

But, again, Covid is a war-like pandemic, and it is followed by the Ukraine war.

So, such worldwide inflation was possibly inevitable. Every country had to prepare to combat the pandemic-related shocks in its own way unless it was ignored. Now it’s about how quickly and how efficiently countries manage to curb the soaring inflation.

The writer is Professor of Statistics, Indian Statistical Institute, Kolkata