Inflation as a global phenomena and not just food and energy

 

The most recent OECD inflation data have come out, and it sends a clear message that inflation is a global problem and it is a problem beyond food and energy.  The numbers are the highest since 1990. This was before the inflation targeting by many central banks. The headline data is the highest since the 1980's. 

The shock to energy for OECD countries is greater than 40%. The shock for food is well above 10%. Monetary policy cannot solve the supply shock directly; however, central banks can slow aggregate demand. The general increase in prices is an aggregate demand problem from too much money chasing existing goods. This can be solved, but again it will impact aggregate demand.

The latest US employment numbers tell us that wages are going up well above 5% and there is a still a strong labor market. The Fed and other central banks will have to do more to quell these inflation numbers.