Inflation, Global Financial Crisis, and COVID-19 Pandemic

Abstract

In the years 2021-2022, world inflation has drastically increased. The analyses of the main characteristics of the 2007-2009 financial crisis and of the economic crisis caused by COVID-19 pandemic as well as of the rise in total debt of the non-financial sector suggest that the growth of inflation was triggered by excessive debt growth of the government sector in 2020-2021. In that period, the main goal of the debt growth of the government sector was to finance the aid schemes limiting the negative effects of the COVID-19 pandemic. These aid programmes were indispensable to avoid deep and long-term global economic recession, however their value was too high to keep inflation in the world under control. Fiscal intervention of particular countries should be co-ordinated internationally, as the cumulative result of the operations undertaken by particular states might have detrimental effect globally.

Keywords: inflation, COVID-19, financial crisis, fiscal policy, public debt, private debt

JEL Classification: E31, E51, H12, H30