While the sources of inflation vary, a major driver in many regions is debt-financed fiscal policy. Much of this policy was debated and enacted rapidly in 2020 in an effort to directly support households and businesses during the COVID-19 pandemic. As this government-financed funding flowed into the economy, demand for goods and services rose significantly in the following years (in many cases amid supply constraints), and price levels rose. In advanced economies, there’s a significant positive relationship between core inflation and sovereign debt growth since the start of the pandemic (see Figure 1). Different ... (full story)