The return of inflation may end up fundamentally altering policy makers’ mind-sets and priorities

That’s the key takeaway from a noteworthy speech by Agustín Carstens, general manager of the Bank for International Settlements.

The financial crisis was rooted in the assumption that markets are largely self-correcting, and individual firms and sectors could collapse without consequences for the broader financial system.

The return of inflation was almost universally unexpected, including by the BIS. 

Second, the return of inflation, while most pronounced in the U.S., is global. 

Whether we are now shifting from a low-inflation environment to a high-inflation environment is the biggest question facing central banks. 

Greg Ip WSJ 6 April 2022 

https://www.wsj.com/articles/what-the-2008-financial-crisis-tells-us-about-todays-inflation-surge-11649263077

The return of inflation
Speech by Agustín Carstens, General Manager of the BIS at the International Center for Monetary and Banking Studies, Geneva, 5 April 2022.

https://www.bis.org/speeches/sp220405.htm

Interest rates are still zero and the Fed is still soaking up $120bn of bonds each month 

Ambrose Evans-Pritchard Telegraph 1 July 2021

https://englundmacro.blogspot.com/2021/07/interest-rates-are-still-zero-and-fed.html

 

Is high inflation here to stay?

Globalization, robust policy frameworks, demographic changes, structural factors, and technological advances were instrumental in keeping inflation low until 2020. 

These factors provide clues to questions about whether the current surge in prices is transitory or more long-lasting. Should these forces recede, increases in short-term inflation may become much more persistent.  

Brookings 5 April 2022 

https://www.brookings.edu/blog/future-development/2022/04/05/is-high-inflation-here-to-stay/