Theoretical Approaches to Identifying the Causes of Inflation in Modern Conditions

Abstract

The article is devoted to the theoretical justification of the reasons for the manifestation of inflationary processes in the period 2020-2023 in the developed countries of Europe, taking into account the spread of the Covid-19 pandemic and the Russo-Ukrainian War, which in general led to the return of inflationary pressure and slowed down the growth of the global economy. The article examines current research on this issue in the context of combating inflation with a combination of monetary and non-monetary regulatory instruments. The article states that similar to the restrictive monetary policy, the strengthening of the fiscal policy and the increase of tax burden on households provoked the opposite effect. Historical experience shows that the inflationary effect of war affects not only the warring parties, but also external countries. This state of affairs led to the gradual elimination of the favourable anti-inflationary effects of globalization due to the division and fragmentation of supply chains. Most of the European Union member states have classified price pressure from the side of aggregate supply, and, apart from monetary approaches to fight inflation, the main focus of the applied measures is not aimed at curbing aggregate demand. In the article several reasons for the manifestation of inflation in 2020-2023 are identified: recovery from the recession caused by the coronavirus epidemic was extremely fast, subsidies provided in the early stages of the pandemic increased demand over time; the shift in aggregate demand from services to goods caused by the pandemic turned out to be permanent; supply has not kept up with rapid demand, global value chains have come under pressure; supply was particularly tight in energy and other commodity markets, causing significant price increases and greater volatility. Russia's war against Ukraine has further disrupted the global supply of strategically important commodities – crude oil, natural gas, nickel, palladium and fertilizers. All this in general needs to be solved by both monetary and non-monetary instruments of regulation.