Global Inflation Dynamics and its Impact on Economic Growth, Labor Markets, and Policy Stability: A Systematic Literature Review 2000–2024

Abstract

Various studies have shown that inflation can no longer be understood simply as a general increase in prices, but as a multidimensional phenomenon interacting with economic structure, labor markets, exchange rates, and the design of monetary and fiscal policies. This review integrates key findings from the literature on the non-linear, threshold-based inflation-growth relationship, with evidence that high inflation tends to reduce growth, while low-moderate inflation can have more ambiguous and context-dependent effects. In the labor market dimension, inflation has been shown to erode real wages, trigger wage bias , and contribute to labor cost volatility, although in some contexts a bidirectional relationship between inflation, productivity, and wages has been found. Studies on inflation interdependence in developed economies confirm a strong global component, particularly through energy prices, but show that the correlation with core inflation is relatively weak, indicating the importance of domestic factors and sectoral heterogeneity. On the other hand, recent literature confirms that inflation forecasting becomes significantly more difficult during times of turbulence (COVID-19, energy shocks), and Bayesian VAR models with stochastic volatility or fat-tailed innovations provide better predictive performance than traditional models.