Based on consumer inflation data, international economic institutions such as the International Monetary Fund (IMF), the World Bank and the Organisation for Economic Co-operation and Development (OECD) have focused on the consumer price index (CPI) of G-7 countries and leading G-20 nations over the past year in their quarterly and annual global reports analyzing inflation. The historical jumps in cost inflation and producer price index (PPI) increase the rates of leading economies due to price hikes in global raw materials, commodities and energy, while the increase in logistics costs is generally evaluated within a limited scope in terms of the supply chain disruptions.

However, the most important reason for the increase in consumer inflation in both G-20 and OECD member countries is the rise in the production costs of companies worldwide.

The increase in the production cost of the goods compared to the shelf prices is another important factor. In the world’s 45 leading countries, the increase in production costs is unfolding in a more complex environment than that seen in the 1970s and '80s. As a result, the increase in oil and natural gas prices is not the only reason for the rising global energy costs. At the same time, the effect of the supply-demand imbalance resulting from the deliberate low release of energy derivatives in high demand, a trend fed by competition between leading energy supplying countries, should also be taken into account.

Regarding supplies of raw materials and intermediate products, the "pre-stocking trend" still persists in manufacturing, construction and the agriculture industry due to concerns brought on by the coronavirus pandemic. Considering soaring container costs and extremely delayed unloading at ports, the trend should not surprise anyone. Due to the increasing number of COVID-19 cases, the extensive restrictions implemented in every industrial city in China have frequently led to a lack of parts for many products and sectors. Supply uncertainty has affected many sectors, spanning from automotive to electronics, sometimes even disrupting the entire production line. As a result, the tendency to stock up also feeds cost inflation.

Fed's fear

Central banks are very confused at this point. According to the U.S. Federal Reserve (Fed), American households have accumulated a significant amount of savings that could boost their purchasing power since they did not spend enough money during the global pandemic. Both high and low direct contributions by all segments of society and the unrequited monetary expansion helped keep the economy afloat. However, the Fed fears that it could now trigger acceleration in consumer inflation.

The Fed also fears that the over-tightening of monetary policy, the alienation of investments or consumption with the rise in interest and excessive pressure to suppress the demand in the housing industry could trigger the risk of "stagflation" due to recession, unemployment and high-cost inflation, according to American economist Nouriel Roubini.

International institutions and leading central banks have been unable to adequately analyze the risk of cost inflation. We will continue to talk about the problem of determining the economic policies needed to solve this stalemate.