Supply chain disruptions caused inflation, and the war in Ukraine is making it worse

Inflation is up. Way up. In March 2022, Canada experienced its biggest increase in inflation in more than three decades. The oft-cited monthly inflation figure represents the rate of change in the consumer price index, and many consumers are already feeling the pinch in their pocketbooks.

But why is it happening? Inflation is typically caused by either increased consumer demand in a strong economy, or by supply shortages that drive prices higher.

The current circumstances are a product of shocks on the supply side, according to Associate Professor of Finance Sebastien Betermier. The pandemic disrupted supply chains, and the war in Ukraine has exacerbated it by causing shortages of certain commodities, particularly oil and natural gas, which are used in the production of many other goods.