In order to understand the current state of global inflation, it's important to get some context. Developed world economies and their central banks have experienced very low inflation since the 2008 financial crisis. For most of that period, people have been worried about disinflation and central banks have made multiple attempts to ignite a spark. When inflation does occur, central banks are forced to raise interest rates, which in normal times, has the intended effect of dampening the gears of economic growth.
While moderate inflation brings new investment opportunities and stimulates movement, excessive inflation is a significant threat to growth and social stability. It undermines the value of savings and currencies, increases the cost of living, and reduces productivity through increased wage and salary costs. However, due to the novel nature of the current economic situation, inflation could prove to be even more problematic when it does kick back into gear.
COVID-19 has expanded an already swollen global debt environment, and stretched resources to their very limits. A lot of things will be put at risk if inflation occurs earlier than expected. The current situation exists due to disparity between monetary and fiscal policy, along with growing economic inequality both between nations and within them. If inflation grows faster than expected, or before we're ready to adjust, every single sector of the economy would be affected.
At the moment, central banks around the world are striving to create a situation where there is just enough inflation. They are aiming for around 2% on average, which is the standard 'Goldilocks' range of not too warm and not too cool. This is difficult to manage at the best of times, however, let alone as the world emerges from a 1-in-100 year pandemic. The March US CPI is already at 2.6%, which is the highest rate since 2012. It continues to rise faster than expectations, with core inflation also way ahead of forecasts.
The world is currently stretched to its limit, with a shortage of containers, computer chips, and numerous manufacturing goods already slowing down entire industry sectors. Amidst a backdrop of uneven vaccination rates and growing tensions between China and much of the world, any small divergence away from 2% may have larger effects than anticipated. Leading financial experts disagree about how to tackle this growing problem, with the global pandemic continuing to confuse economic forecasts.