ECB's Lane: Negative shocks on inflation could be more persistent

Author: Adam Button | Category: Central Banks

Lane speaks at a virtual conference

  • In a world of low inflation and low rates, it is plausible that the impact of negative shocks on observed inflation is likely to be more persistent
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His speech is on how and why inflation has moved in sync in developed global economies. He points to common shocks and commodity prices as some factors.

Interestingly, he highlights that factors like globalization's impact on prices are important to understand because they could reverse in the years ahead.

The challenge for central banks is to ensure that monetary policy strategies successfully protect the medium-term inflation aim by ensuring that the economic and financial assessments that inform policy decisions successfully diagnose the nature of the underlying shocks driving the inflation outlook. This includes recognising the impact of trend forces such as globalisation, demography and digitalisation (together with climate change and the pandemic) on the underlying structure of the economy and the dynamics of wage and price setting. In making these assessments on an ongoing basis, it is important to avoid the temptation to extrapolate from recent experience; in particular, some of the forces that have contributed to an increase in international inflation co-movement in recent decades may act as sources of divergence in the future.

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