The COVID 19 pandemic followed by the invasion of Ukraine is a two-punch economic strike never seen in recent history. The pandemic not only disrupted many aspects of a tightly knit integrated world but also exposed its fragility. The devastation of Ukraine and the sanctions quickly imposed by most major developed countries have accelerated the retreat of globalization.

For many decades, Central Bankers and economists considered stable prices as an almost permanent feature. Today, the consumer price index in the US hit a 40-year high at more than 8 per cent and experts were unable to predict such course of inflation.

In this paper, Robert Amzallag, CIRANO Invited Fellow, looks at these recent events in the light of the factors that have altered significantly and reliably inflation since World War II. Despite the dire economic challenges, the economy recovered quickly after the war. The financial imbalances rectified in only a few years and inflation was tamed.

Can the same thing be achieved today? The author’s analysis suggests that this is highly improbable. Deep-rooted inflationary forces are at work because of the distortions that the economic order of the last 40 years has created. These distortions, exacerbated by the dual crisis of COVID 19 and the invasion of Ukraine, will take long to repair.