The role of long histories of "lived experience" in the COVID-era inflationary surge

A rough consensus has evolved around the causes of the COVID-era inflationary spike: the disruption in supply chains; the shift in demand from services to goods; the surge in commodity prices that followed Russia’s invasion of Ukraine; and the pandemic fiscal stimulus programs. This paper highlights an additional factor influencing the incidence of pandemic inflation across countries—their long histories of “lived experience” with inflation. The authors show that more than half of the variation in inflation across countries during the 2020-23 period can be explained by their earlier levels of inflation. Even controlling for inflation in the 2016-19 period, countries with higher inflation in the 2000-2015 period had higher COVID-era inflation, and the effect of long-lagged inflation is both economically and statistically significant. These long histories of lived experience dominated other policy measures to control inflation, including inflation targets and central bank independence. The influence of long-lagged inflation history appears to be greatest during periods of heightened volatility; it was less important in explaining the cross-country pattern of inflation during the more tranquil period immediately preceding the pandemic.