Meanwhile the COVID measures imposed by governments also focused on bank credit creation. In parallel with unprecedented societal and business lockdowns, retail banks were instructed to increase lending to businesses with governments guaranteeing these loans. Stimulus checks were paid out to furloughed workers, and both central banks and retail banks also stepped up purchases of government bonds. So both central and commercial banks added to the supply of money, with much of it being used for general consumption rather than productive purposes (loans to businesses).

As a result, the money supply ballooned by record amounts. The US’s “broad” money supply metric, M3, increased by 19.1% in 2020, the highest annual rise on record. In the eurozone, money supply M1 grew by 15.6% in December 2020.

All of this boosted demand, while at the same time the supply of goods and services was limited by pandemic restrictions that immobilised people and shut down many small firms and affected some supply chains. It was a perfect recipe for inflation – and significant consumer price inflation duly followed around 18 months later, in late 2021 and 2022.

While it was certainly exacerbated by the COVID restrictions, it had nothing to do with Russian military actions or sanctions on Russian energy – and a lot to do with the central banks’ misuse of QE.