Despite its negative connotations, inflation can actually be a good thing. As long as it’s not excessive or unpredictable, it encourages consumers to spend money sooner rather than later, reduces the amount of debt held by households and companies, and erodes the purchasing power of existing savings, freeing up dollars to be invested in new goods and services.
But the speed and magnitude of inflation varies widely across economies and can be hard to predict. One explanation is that countries are at different stages of their economic cycles. When demand is weak, inflation slows down; during boom times, it accelerates. But there are also a number of other factors that influence the inflation rates of individual countries.
Among these are the relative size of the economies’ labor markets, their ability to import and export goods and services, and the impact of political events (e.g., a war or sanctions). In the case of COVID-19, many countries had already been experiencing low inflation rates before the pandemic hit. Consequently, their inflation rates rose rapidly in early 2021 and then slowed down, while other countries experienced more moderate increases or none at all. This variation was reflected in the wide range of inflation rates seen in our chart, which shows the median and interquartile range for 21 economies. Our chart also displays core inflation rates, which exclude food and energy prices, which can be volatile due to short-term supply and demand conditions in specific markets.