The Return of Inflation

After several years of persistently below-target inflation rates, inflation has been increasing markedly since 2021. This uptrend is global, although it varies across regions. Several driving factors have been identified: the vigorous post-pandemic economic recovery; disruptions in global value chains for intermediate and final goods, due in part to short-term pandemic-related factors and in part to a possible reversal of globalization; cycles in commodity and energy production and prices, some of which may also be related to actual or anticipated climate protection measures; and labor market shortages resulting from pandemic-induced structural changes in labor demand and supply. Whether the rising inflation rates we currently observe are a temporary or more permanent phenomenon has been subject of lively debates among policymakers and academia. Among other things, this question hinges on the reaction of expectations and wages to the rise in headline inflation. Central banks worldwide have come under pressure to change their policy stance. The risk of missing a timely response and of inflation becoming entrenched as a result contrasts with concerns of strangling the economic recovery while uncertainties regarding the future course of the pandemic persist. In addition to the great uncertainties originating from the factors mentioned above, at a political economy level the interplay between monetary policy, fiscal policies and financial stability has become more complicated in a post-pandemic world where high debt, high asset market valuations and climate challenges potentially hamper central banks’ perceived anti-inflationary resolve. Many of these challenges have more recently been accentuated by the economic fallout from the Russian invasion in Ukraine and by sanctions imposed on Russia. This conference concentrates on six topics: secular drivers of inflation in the post-pandemic world; the role and measurement of inflation perceptions and expectations; insights from micro price data; the impact of climate change and climate protection on inflation; the role of policymaking and the interaction of monetary policy, fiscal sustainability and financial stability; and current challenges to inflation forecasting.

Conference Proceedings No 2023/1 “The Return of Inflation” (pdf)