Inflation During the Pandemic: What Happened? What is Next?

We analyze the evolution and drivers of inflation during pandemic likely trajectory in near-term using an event study around global recessions a factor-augmented vector auto-regression (FAVAR) model. report three main results. First, decline 2020 recession was most muted shortest-lived any five over past 50 years increase since May has been fastest. Second, from January-May four-fifths driven by collapse demand another one-fifth plunging oil prices, with some offsetting inflationary pressures supply disruptions. The subsequent surge mostly sharp demand. Third, both model-based forecasts current expectations point to for 2021 just 1 percentage point. For virtually all advanced economies one-half inflation-targeting emerging market developing (EMDEs), this magnitude would leave within target ranges. If is temporary remain well-anchored, it may not warrant monetary policy response. If, however, risk becoming unanchored, EMDE central banks be compelled tighten before recovery fully entrenched.