💸 The 2022–23 Inflation Shock

A reminder that inflation is never “gone for good.”

Following the COVID-19 pandemic, the global economy rebounded, but supply chains were broken. Demand for goods surged, especially with online shopping and government stimulus. At the same time, disruptions in ports, factories, and shipping lanes caused shortages. Prices began to rise.

Then came the Russia-Ukraine war, sending energy and food prices soaring. Inflation hit over 10% in the UK, with even higher spikes in countries dependent on imports. Central banks had to act fast, raising interest rates to cool demand. In the US, rates rose from near zero to over 5% within a year.

But rate hikes had side effects. They made mortgages and loans more expensive, hitting households and businesses. Emerging markets also suffered as investors pulled out money in search of higher returns in the US and Europe.

Key lesson: Inflation can return quickly when supply and demand are out of balance. Central banks must act swiftly, but not without consequences, raising rates can cool prices but risks triggering recession.