Will Inflation Ever be a Problem?
Each period of recovery comes with a period of inflation normalisation: as economic activity declines during a recession, prices of goods and services fall – a mechanical effect of depressed demand. What most phases of normalisation have in common is their short duration: inflation rises above the central bank’s target for a few months before returning to its long-term trend. One of the main reasons for this is the typical origin of this normalisation: as household demand and investment pick up, commodity markets, especially energy, see their prices rise, mechanically leading inflation to a moderate, but above all, temporary acceleration. This was the case in the recoveries of 1994, 2003, 2009 and 2011. Will we see the same again?
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