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  • Jonathan Wilmot

10 Charts on War, Inflation and Asset Prices

Western governments responded the COVID shock with fiscal shock and awe of varying degrees, the net effect being to boost aggregate demand and savings at a time of shortages and bottlenecks related to the widespread disruption to domestic supply chains, international trade, transport costs and labour markets. This was followed by a major spike in food and energy prices, given a further twist by Putin’s invasion of Ukraine this February.


Abnormally large budget deficits, strong aggregate demand, labour shortages, supply chain disruptions and spikes in energy and food prices mimic pretty exactly what usually happens during major wars.


And as the charts below show US inflation has only been abnormally high during major war periods historically. In fact, war time inflation is probably best thought of as a kind of jump bump in commodity prices, the aggregate price level and nominal wages, which ends or partly reverses when peace returns.


The 10 charts below show how major wars tend to affect oil prices, the aggregate price level, interest rates and equity markets. The table in figure 1 also shows that inflation mean reverts once the war disruption comes to an end. In the 20th century inflation outside war times has run below 2% per annum.













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