For at least a decade, the only conversations about inflation in economic and financial circles were really about its absence and whether it should be generated.

Therefore, we live in a world of historically low short- and long-term interest rates for an extended period of time and central banks around the world have injected liquidity into the global financial system through quantitative easing ( QE).

Sadly, the world has changed dramatically in recent months, inflationary pressures are mounting on many different fronts, and central banks seem somewhat perplexed and uncertain about how to respond on the monetary policy front.

Initially, they argued that the surge in inflation was transient, and although they still seem to believe it, the transition period appears to be lengthening.

Price pressures are evident on many fronts. Energy costs are rising sharply, with the prices of natural gas, coal, oil and many other commodities rising sharply.

These increases in energy prices are due to a confluence of factors including high demand, supply constraints following Covid, the transition from fossil fuels in power generation and many political factors.

In a sense, energy prices are hit by a perfect storm, and we have no clear idea when the storm might subside.

Between September and September, average consumer prices rose 3.7%, the highest inflation rate since June 2008.

Shipping costs are also on the rise due to the scarcity of containers and shipping vessels. This translates into higher prices and supply chain issues.

If the shipping cost increases, it will inevitably lead to higher wholesale and consumer prices.

Construction costs are also rising sharply around the world due to material shortages.

Labor shortages in some sectors are also evident, which is also leading to higher wages. Semiconductor chips are also experiencing significant shortages, which, among other things, are causing serious problems for the automobile industry and driving up the prices of new and used cars.

In short, the world economy is experiencing the first supply shock since the two oil shocks of the 1970s.

This may only be a reflection of the massive, multi-faceted dislocation caused by Covid, but the danger with inflation is that it can become embedded in the system and a wage-price spiral in the old one could develop, and meet a strong demand. drives the price increases.

This is the most difficult pricing environment we have experienced in recent years.

Ireland is not immune to these generalized inflationary pressures at both producer and consumer level. Between September and September, average consumer prices rose 3.7%, the highest inflation rate since June 2008.

Transportation costs increased 11.4%, mainly due to fuel costs; private rents increased by 5.9%; the prices of alcoholic beverages and tobacco rose 4.9%; oil prices rose 12.5%; diesel prices increased by 13%; and heating oil rose a staggering 39.3%.

We are entering a winter where the cost of living and the cost of doing business are significantly higher, but the hope is that the constraints on the supply side will ease in the spring and we will settle into an environment of more normal inflation.

However, things are likely to get worse before they get better.

In Budget 2022 last week, the finance minister warned of other risks to inflation and the cost of living, and as a result limited attempts were made to shield some people from greater pressures. high cost of living.

For central bankers, a new world has emerged, and with the obvious vulnerabilities of the global economy and with high levels of public debt, the idea of ​​raising short-term interest rates and raising yields government bonds is not very appetizing.