Inflation after COVID: what caused it, according to the Fed, BIS and Bank of England

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Inflation after COVID peaked at 9.1% in the United States in the 12 months to June 2022, the largest increase since 1981, and at 11.1% in the United Kingdom in October 2022. The Federal Reserve, the Bank for International Settlements (BIS) and the Bank of England have traced it to several causes acting at once: demand lifted by pandemic support, supply chains that could not keep up, the energy and food shock after Russia's invasion of Ukraine in 2022, and tight labor markets.

This page sets out the numbers first, then what those institutions concluded about the causes. The conclusions are theirs, quoted or summarized from their publications. For the general mechanics of rising prices, see what causes inflation.

How high did inflation go after COVID?

In the US, the Consumer Price Index for All Urban Consumers (CPI-U) was rising 2.3% a year in February 2020. As spending collapsed in the spring, the annual rate fell to 0.2% in May 2020. It then climbed quickly: 5.3% in June 2021 and a peak in June 2022. The Bureau of Labor Statistics reported that the all items index rose 9.1% over the year to June 2022 (not seasonally adjusted), the largest 12-month increase since the period ending November 1981. Energy prices rose 41.6% over that year and food prices 10.4%, with food at home up 12.2%. The index excluding food and energy (core inflation) rose 5.9% in that release, and core inflation peaked later, at 6.6% in September 2022.

In the UK, the Office for National Statistics' CPI annual rate was 1.7% in February 2020 and fell to 0.2% in August 2020. It reached 5.4% in December 2021 and peaked at 11.1% in October 2022. It was back down to 4.0% by December 2023 and 1.7% by September 2024.

US figures other than the 9.1% peak are year-over-year changes in the seasonally adjusted index published on FRED; on that basis the June 2022 peak is 9.0%. Both measures tell the same story. Inflation came down from its peak, but prices did not go back to where they were. The US CPI index stood 28.9% higher in August 2026 than in February 2020.

What caused inflation after COVID, according to official sources?

No single cause explains the episode, and the official studies say so. They differ on the weights, and they describe four main forces.

1. Demand, supported by fiscal and monetary policy

The BIS, in its Annual Economic Report of June 2022, wrote that "massive fiscal and monetary policy support early in the pandemic bolstered household incomes despite large falls in GDP." In the US, households saved much of that income while spending was restricted: the personal saving rate rose from 7.5% in February 2020 to 31.8% in April 2020 (BEA data). When restrictions eased in 2021, spending came back fast. The Federal Reserve kept its policy rate near zero through 2021; the effective federal funds rate averaged 0.08% from late 2021 through February 2022.

The BIS also pointed to the type of demand. It said "the pandemic-induced rotation of aggregate demand to goods from services, especially contact-intensive ones, proved surprisingly persistent." People bought more goods and fewer services, which put pressure on the factories, ports and shipping lines that produce and move goods.

2. Supply chains that could not keep up

That demand for goods met a supply system already disrupted by the pandemic. The BIS wrote that "bottlenecks emerged in a number of areas, including container shipping and semiconductors, leading to sharp price increases." The New York Fed's Global Supply Chain Pressure Index reached its highest reading on record in December 2021. One clear example in the US data: the used cars and trucks index in the CPI rose 45.2% in the 12 months to June 2021, which BLS called the largest 12-month change ever reported for that index. Our page on the supply chain crisis covers this in detail.

3. Energy and food after Russia's invasion of Ukraine

Russia's invasion of Ukraine in 2022 came when inflation was already high. The BIS wrote that "the war in Ukraine further disrupted the global supply of products such as wheat, oil, gas, nickel, palladium and fertilisers." The Bank of England's Monetary Policy Report of November 2022 said that "Russia's invasion of Ukraine has led to more large increases in the price of gas." The Bank's analysis gives gas prices a central role in the UK rise, which peaked higher (11.1%) and later than in the US (9.1%).

4. Tight labor markets

Labor shortages added a domestic source of pressure, especially in services. The Bank of England's November 2022 report put it plainly: "There are more job vacancies than there are people to fill them, as fewer people are seeking work following the pandemic." It added that employers were having to offer higher wages to attract applicants and that prices for services had risen markedly. The BIS noted that labor market conditions were "remarkably tight," with job vacancy rates well above historical averages, even though real wages had grown slowly. In the US, unemployment fell from its April 2020 high of 14.8% to 3.5% by December 2022.

How much was supply and how much was demand?

One attempt to split the causes comes from Adam Shapiro of the Federal Reserve Bank of San Francisco, in an Economic Letter published on June 21, 2022. He compared US PCE inflation in April 2022 (6.3%) with its pre-pandemic average (1.5%) and sorted price changes by whether they looked driven by supply or by demand. His conclusion: "Supply factors explain about half of the run-up in current inflation levels. Demand factors are responsible for about one-third." The rest could not be clearly assigned.

The same letter found that demand played a large role in inflation in spring 2021, after the fiscal stimulus, moderated in the summer and reappeared in the fall, while supply-driven inflation kept rising into 2022 with food, energy and the effects of the war. It warned that inflationary pressures would not completely subside until labor shortages, production constraints and shipping delays were resolved.

The Bank of England described a similar mix for the UK. Beyond energy, its November 2022 report said that "higher prices for the goods we buy from abroad have also played a big role," because people bought more goods during the pandemic and sellers had problems getting enough of them, and that businesses were charging more because of the higher costs they faced.

How did central banks respond?

Both central banks raised interest rates sharply, starting from emergency lows set in March 2020.

• Bank of England. Bank Rate was cut to 0.1% on March 19, 2020. The first rise, to 0.25%, came on December 16, 2021. After 14 consecutive increases it reached 5.25% on August 3, 2023. Cuts began on August 1, 2024 (to 5%), and Bank Rate has been 3.75% since December 18, 2025.
• Federal Reserve. The effective federal funds rate rose from 0.08% in February 2022 to 0.20% in March 2022 and peaked at a monthly average of 5.33% in August 2023. It averaged 3.75% in September 2026.

Higher rates had effects well beyond prices. The S&P 500 fell 25.4% from January to October 2022, a bear market, and the gap between 10-year and 2-year Treasury yields stayed negative for more than two years, a long inverted yield curve. In the UK, the squeeze on household budgets is covered in our page on the cost of living crisis.

Is inflation after COVID over?

The peak is well behind. US annual inflation was 3.0% in June 2024 and 3.4% in August 2026, with core inflation at 2.4%. UK inflation was 3.1% in August 2026. Both are above the 2% targets the Fed and the Bank of England aim for, and the price level has not fallen back: in the US, prices were 28.9% higher in August 2026 than just before the pandemic. Lower inflation means prices are rising more slowly; they are not dropping. High inflation combined with stagnant output has its own name, explained on our page about stagflation.

One quieter form of price increase during this period was smaller packages at the same price, covered in our page on shrinkflation.

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