Monthly Archives: March 2023

Is a profit-price spiral driving inflation?

Inflation really started to pick up in the second half of 2021. Coming out of the pandemic, as the economy recovered, demand and supply were out of whack. Buoyed by pandemic-era government supports, but still cautious – or restricted! – in going to pubs or restaurants or consuming any services that require close human contact, we were still buying more stuff. Replicated the world over, this meant relatively high demand for goods and snarled supply chains. This caused prices to rise.

In early 2022, Russia invaded Ukraine, sending oil and gas prices through the roof. This quickly fed through to higher energy prices, at the pump and in our electricity bills. More slowly, it fed through to higher prices for everything that uses energy as an input. That is to say, almost everything. The annual inflation rate seems to have peaked at 9.2% in October 2022, and was expected to fall throughout 2023 as interest rate increases sapped demand and dampened prices. After prices spiked by 1.6% in February alone, only modest progress has been made so far, with annual inflation still at 8.5% as of last month. Still, in the absence of further energy shocks, the expectation is that inflation will moderate as the year progresses.

*** This article was first published at thejournal.ie on 27 March 2023 ***

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