Global demand shocks have been the main force triggering the collapse of inflation in the first half of 2020. They fully accounted for the decline in year-on-year inflation, on average, between the fourth quarter of 2019 and the second quarter of 2020. These demand shocks began to unwind in the second half of 2020, on the back of a strong demand rebound from the global recession, a recovery that was in part fueled by substantial policy support. Price increases were particularly large in sectors in which pent-up demand picked up after the reopening from the pandemic while capacity constraints and supply chain disruptions persisted.

Since the second half of 2021, and in particular following the Russian invasion of Ukraine in early 2022, the drivers of inflation pressures have broadened. Global demand shocks, in part reflecting the release of pent-up demand, accounted for about a fourth of the 6.5 percentage-point increase in year-on-year inflation, on average, between the second quarter of 2021 and the second quarter of 2022; global supply shocks, such as shipping bottlenecks and wage pressures in some countries, accounted for a fifth of the increase; the rebound in global oil prices for a tenth. These findings are broadly consistent with empirical results reported by di Giovanni et al. (2022), Shapiro (2022), and Ha, Kose, and Ohnsorge (2022).

# **VI. Robustness exercises**

In this section, we present a set of exercises to check the robustness of our headline results: (i) using real oil prices and nominal energy prices as alternatives to nominal oil prices; (ii) using alternative measures of global output growth and global inflation; and (iii) presenting variance compositions based on the simple averages and weighted averages across countries (as an alternative to using medians). The results from these exercises are broadly in line with our headline results (see Table 5).

# **VI.1. Oil prices**

Our baseline exercises employ growth of nominal oil prices. We replace them here with two alternative price series: (i) growth of real oil prices, and (ii) growth of nominal energy prices.<sup>8</sup> The corresponding measures are depicted in Figure 4, where they are shown to be very similar. In the baseline exercise, oil price shocks account for about 4 percent of inflation variance. When the alternative measures are used in estimations, the share is around 6 percent.

# **VI.2. Global output growth and global inflation**

We proxied global output growth and global inflation with common global factors in our baseline exercises. Alternatively, they can be based on the: (i) median of, and (ii) weighted average across countries. These alternative measures move closely with our global factor estimates (see Figure 4). While these new measures do not affect the relative importance of global supply and oil price shocks in explaining inflation variance, they translate into a somewhat larger role for global

> 8 Nominal oil and energy prices are based on the series from the World Bank’s Pink Sheet data. Real oil prices are obtained by deflating nominal oil prices with the U.S. Consumer Price Index. The nominal energy price is an index that includes crude oil prices, natural gas prices, and coal prices.

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