Drivers of Inflation: From Roots to Regressions

PIDE Knowledge Brief No. 38:2021
Author: Abdul Jalil
Publication Year : 2021

Inflation has become a topic of serious discussion since the 1970s due to its well-documented cost (see Box 1), and the policymakers always try to concentrate on inflation-averse policies. Therefore, the understanding of the drivers of inflation is essential for designing policies to control inflation. The understanding of inflation is not only an academic discussion, but the source of inflation also shapes the policy to control inflation (Khan and Schimmelpfennig, 2006). For example, if inflation is a monetary phenomenon, then it is the country’s fiscal and monetary authorities’ concern. On the other hand, if it comes from supply-side issue, the solution often lies in excessive regulation, barriers to movement of goods and a closed economy.