When it comes to inflation, the global economy is in a “new world,” Federal Reserve Chairman Jerome Powell said in a speech in Portugal in late June.
The low inflation period of the post-2008 era is a thing of the past, he said, citing new economic forces that have led to higher inflation and resulting challenges for the world’s central banks.
“The last 10 years were, so far, the height of the disinflationary forces that we’ve faced, and really it goes back to before the global financial crisis, but since the global financial crisis, we’ve had very low inflation in the United States,” Powell said at a central banking forum. “That world seems to be gone now, at least for the time being.”
The U.S. is not the only country fighting inflation, where at the time of writing it sits at 8.5%. In France, inflation is at 5.2%; in Germany, 7.6%; and in Spain, 10%. Powell said the Fed is committed to returning inflation to an annual rate of 2%.
Economists say the combination of high demand for goods and services and supply shortages and disruptions following the coronavirus pandemic are the key causes of inflation. Some economists say that supply disruptions have been compounded by high levels of employment and increasing wages, according to The Hill.
“We fully understand and appreciate the pain people are going through dealing with higher inflation. We have the tools to address that and the resolve to use them,” said Powell. “The process is likely—highly likely—to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent.”