Inflation’s Wild Ride

Coming into and through 2019, the economy was strong and the Consumer Price Index, a key measure of inflation, was low. For some, that seemed like a bad thing — economists worried that chronically low inflation could increase the risk of future economic stagnation.

In early 2020 — as the economy stalled with the spread of Covid-19 — the C.P.I. plunged. The Personal Consumption Expenditures index, a slightly delayed price measure that the Fed uses for its 2 percent inflation target, similarly fell.

In early 2021, President Biden ushered in a large stimulus package, which included one-time checks of $1,400. The aid, which former President Donald J. Trump previously suggested, followed major relief packages passed by his administration.

Some economists warned that the government was pumping too much money into the system, and that the fresh round of aid to households and state governments risked igniting inflation.

Within a few months, inflation began to pick up. At first, that was partly because of the way the data was measured: Price increases had been slow in 2020 amid pandemic lockdowns, and the annual data were lapping those low readings, so they looked strong.

But under the surface, prices were starting to pick up for a few important products.

Consumer demand surged with the stimulus checks. But as families began buying products in huge quantities, hot demand crashed into limited supply.

Factory shutdowns, computer chip shortages and clogged ports coincided, preventing companies from ramping up production and inventories. New car prices were among the first things to shoot up.

The Federal Reserve initially treated the price pop as “transitory,” meaning that it would most likely fade on its own. But officials had started growing nervous as inflation showed signs of broadening. Rents began rising quickly, as did prices of other services.

The Fed backed away from promises to keep interest rates low for a long time, and in March 2022, it raised its benchmark rate from near zero in an effort to slow inflation.

Russia’s invasion of Ukraine helped push up food and fuel prices, and it became clear that inflation was jumping to levels not seen in decades. The Fed jerked rates up sharply as inflation rose.

The Consumer Price Index inflation peaked at 9.1 percent that summer, as an array of products and services, from cars to restaurant meals, climbed rapidly in price.

Higher interest rates will “bring some pain to households and businesses,” Jerome H. Powell, the Fed chair, warned in August. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

But by late 2022, supply chain pressures were easing, allowing price increases on some goods to cool. The Fed slowed its rate increases as inflation decelerated. But officials still thought there was a chance that the economy would weaken meaningfully before inflation was fully vanquished.

That fear became even more pronounced — and Fed staff began to actively forecast a recession — after a series of bank blowups in early 2023.

By mid-2023, though, inflation was notably cooler. Price jumps began to moderate even in service categories, which made economists hope that the deceleration might be the real deal.

Forecasters were suddenly surprised by how quickly inflation was coming down. Officials began to sound more optimistic about the prospects for a “soft landing,” in which the economy cools gradually, allowing inflation to return to normal without a recession.

The Fed even opted to skip a final quarter-point rate increase in December 2023. “Inflation has eased from its highs, and this has come without a significant increase in unemployment — that’s very good news,” Mr. Powell said.

But in early 2024, inflation remained more stubborn than economists had anticipated. Investors initially expected the Fed to begin cutting interest rates early in the year, but they began to push back those forecasts as inflation lingered.