As era of easy money ends,enduring inflation causes chronic headache

Across the world, when prices surge, people can afford less, and businesses struggle to control costs.
In some extreme cases, societies tend to unravel when people are starving due to prohibitively higher prices.
The French Revolution was triggered, in part, by the rising price of bread.
For sure, one of the biggest challenges facing the post-pandemic world is how to tame inflation.
Leading economists surveyed by the World Economic Forum in September warned that today’s rising prices will likely cause social unrest in low-income countries.
The early days of the pandemic witnessed a supply shock as Chinese factories closed, transport of goods slowed and manufacturers found themselves missing key parts.
In many cases, higher costs were passed along to consumers.
The post-pandemic recovery increased demand for energy, which coincided in Europe with lower output from wind turbines and a shortage of natural gas.
The second supply shock followed after Russia, facing sanctions following its invasion of Ukraine, curbed exports of natural gas to Europe.
And an unparalleled era of easy money came to a screeching halt in 2022, as central banks shifted gears to fight inflation.
The US Federal Reserve raised its benchmark rate from near zero to 4% in a mere six months. Companies, countries and consumers that had borrowed heavily when doing so was cheap now faced new strains, just as banks rediscovered caution in lending.
This sudden tightening of credit conditions not only increased the risks of recession and defaults but raised worries about emerging financial vulnerabilities.
Central banks opened spigots wide to keep the global financial crisis from triggering a depression, using low interest rates and other measures to try to stimulate business activity.
They kept rates low for years in the face of a notably anaemic recovery, then opened the faucets again when the pandemic struck: The Fed cut interest rates back to near zero and didn’t raise them until March 2022.
It helped fuel a period of extraordinary growth in US financial markets, save for the short, sharp pandemic drop in 2020.
Here comes inflation with a roar in 2021 as pandemic restrictions waned while supply chains remained disrupted.
This year, exacerbated by energy shortages and Russia’s invasion of Ukraine, inflation reached over 9% in the US and 10% in the European region.
Led by the Fed, central banks began raising interest rates at the fastest pace in over four decades. They’re aiming to slow growth by reducing consumer demand, hoping in turn that prices will cool, too.
Outside the US, the Fed’s rate increases also strengthened the dollar, which meant that dollar-denominated sovereign and corporate debt in emerging markets became a lot more expensive to repay.
As a matter of fact, in a growing economy, some inflation is to be expected as wages rise and demand for goods and services increases.
The key issue is the rate of inflation.
If the pace of price growth surges above that of wages, the average person’s purchasing power is reduced, and households and the broader economy suffer.
The Federal Reserve Bank of Dallas found that from mid-2021 to mid-2022, American workers faced the biggest decline in real wages in about 25 years — roughly 8.5% with inflation factored in.
Independent central banks consider it their most important mission to keep inflation in check. They set interest rates and use other policy tools to try to keep inflation at a healthy rate.
In much of the developed world, including the US and the European Union, that ideal rate is seen as 2%.