2023-08-26 12:07:06
Changes in the way the global economy works could create greater inflation volatility and more persistent price pressures, European Central Bank (ECB) President Christine Lagarde said on Friday.
Most developed countries have had to deal with historic price increases over the past two years and inflationary pressures have proven to be much more persistent than expected.
An uncertain context
Christine Lagarde said that the labor market is undergoing profound changes, that the energy transition is creating new investment needs and that the accentuation of geopolitical divisions will lead to protectionism and supply chain constraints.
“The new environment is paving the way for larger relative price shocks than before the pandemic,” Christine Lagarde said at the US Federal Reserve Symposium in Jackson Hole, USA. “It is not yet clear whether these various changes will be permanent. But it is already clear that in many cases their effects have been more persistent than we originally anticipated.”
Strong pressure on prices
Larger investment needs and greater supply constraints are likely to lead to greater price pressures and not all sectors will be able to absorb them, the ECB President warned.
The fact that workers now enjoy greater bargaining power due to tight labor markets and that companies adjust their prices more quickly is an additional complication, adding to the pressures on the costs.
Although these changes may only be temporary, central banks should consider the possibility that some of them are long-term, added Christine Lagarde.
Closely monitor the exchange value
“We will have to be extremely careful that greater exchange value volatility does not feed through to medium-term inflation through (wage hikes decided to) ‘follow’ prices,” he said. she indicated.
“It could make inflation more persistent if wage increases are then factored into the prices set by companies, giving rise to what I have called ‘tick for tack’ inflation,” said Christine Lagarde.
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