The pandemic crisis introduced an unprecedented supply-side shock that was global in scope. Despite historically high levels of prior sovereign debt and low bond yields, macroeconomic policy responses included monetised fiscal expansions of extraordinary magnitude. Conventional theory suggests that the combination of supply contractions with such expansions is inflationary, yet central bank discourse during the pandemic expressed little concern about inflation. Our theoretical analysis suggests the presence of strong inflation forces at the time, likely offset by continuing pessimism shocks, consumption constraints and expectations management. In prominent advanced countries over more than a century, monetised fiscal expansions are shown to have preceded inflation surges, most strongly following signature episodes like WWII.
