Inflation risks stemming from monetary policy
While many observers had forecasted a considerable acceleration of inflation,
we pointed out early on that unconventional monetary policy did not come with
significant inflation risks, at least in its early years6. By now, however, risks will
rise as central banks, not least the ECB, delay the overdue exit from their ultra-
loose monetary policies.
At the moment, the effect of digitalisation on inflation is still unclear, as it
involves technical and methodical difficulties in collecting prices and calculating
inflation. However, according to statistical offices these difficulties should not
lead to major errors for now. 8 In addition, digitalisation might lead to higher price
transparency and more choice between different procurement channels. This
might intensify competition and have a disinflationary effect. Still, this effect
might not be permanent; the concentration in the online economy supported by
digitalisation might, in the end, result in higher margins and prices. The long-
term effects on productivity from more cost-efficient technologies and production
procedures will be even more difficult to gauge.
Inflation is obviously an issue that still holds many secrets. This applies not only
to short-term, cyclical developments, but also to structural and long-term factors.
This is probably the reasoning behind the very sober title of a presentation given
in 2017 by Claudio Borio, Head of the Monetary and Economic Department at
the BIS: “How much do we really know about inflation?”
Still, there have been
more and more signs of a pick-up in global inflation for some time now, which
means that both central banks and investors should adapt their strategies rather
sooner than later – even if several questions are still open.
EU Forecast
euf:ba1.8i:148/nws-01