Inflation in the US rose significantly in 2021 but fell faster than in much of Europe. This is partly because Europe has more significant exposure to the fallout from Russia’s invasion of Ukraine, which has sharply pushed up food and energy prices.
But removing those volatile prices, so-called core inflation looks stubborn in many countries. This underscores the common problem facing policymakers: slow prices for services rising much faster than before the pandemic.
Labor-intensive services such as medical care and education tend to track prices wage gain and the strength of the overall economy. In short, these are the types of price increases that central banks can do by raising rates to slow borrowing, reduce spending, and ultimately cool the economy.
At a recent gathering of central bankers, Fed Chair Jerome H. Powell said that for inflation in the services sector, such as hotels, restaurants and banks, “we’re not seeing much progress yet.”
Map includes OECD members and selected major economies. The line charts show the latest central bank policy target rates and year-over-year changes in the consumer price index compiled by the OECD as of May. For Australia, consumer price changes are for the first quarter of the year.
