Inflation, the rate at which prices rise over a given period, had been low and stable for the two decades before the pandemic. In early 2020, economywide inflation hovered around the Federal Reserve’s long-run target of 2 percent. When the pandemic began in 2020, inflation initially fell as many people reduced their social interactions and lessened their consumption of in-person services.

Inflation rose in 2021, driven by supply-side disruptions and heightened demand. Both factors were results of the pandemic and of policies put in place to assist firms and consumers. High inflation continued into 2022 and rose even further that year, propelled by soaring shelter costs, food prices, and energy prices. Rising shelter costs were driven by pandemic-induced demand shifts, whereas increasing food and energy costs followed Russia’s invasion of Ukraine in early 2022.

In 2023, inflation began to cool and approached the Federal Reserve’s long-run goal of 2 percent. Weakening demand for goods and slowing shelter costs combined with softening in food and energy markets brought inflation down.