How Should Inflation Caused by Supply Problems Be Managed?
Supply-side problems account for much of the current surge in inflation in a number of countries. Yet this type of inflation is more difficult to tackle, and there’s a risk of a monetary and fiscal policy mismatch. It is to be hoped that the problems on the supply side will not persist for too long and, above all, an inflationary spiral will be avoided. Otherwise, central banks might have to start raising key rates more quickly to keep inflation under control. Changing inflation expectations and wage trends should be the best indicators of the extent to which central bankers will be willing to exert patience.
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