What is the risk of accelerated price growth? What could lead to inflation? And which countries would be in a more difficult position?
The reason why faster price growth accompanies the revival of production in America and in some European countries is not due to loose monetary policy during the epidemic. Economic commentators often point to a significantly increased amount of money in circulation as a basis for predicting that a time of rising prices will come. Actually, that in itself doesn't make much sense because the expansionary monetary policy was, of course, conducted throughout the epidemic. So it is necessary to take into account the accelerated circulation of money in order to see the accelerated inflation as a monetary phenomenon.
Let's assume, however, that during the epidemic, consumption was reduced and savings increased because the authorities tried to preserve the financial health of the economy and people, so to speak, with monetary and fiscal measures. But that production is at least somewhat preserved, although mostly for supplies. In that case, the increased consumption after the end of the epidemic would be supplied from these stocks, so the prices would not have to change either up or down.
Of course, during the epidemic, production was significantly reduced, so after the end of the epidemic, the supply recovers more slowly than the demand. Because the money is saved and can be spent immediately, and it takes time to produce goods. This does not apply to services, which in some transitional period would probably be offered at lower rather than higher prices. Assuming that people will not want to make up for the coffee or beer they did not drink during the epidemic, the prices of these goods and bar and restaurant services should not rise. While things are different with, say, durable consumer goods or some semi-finished products.
However, since the production capabilities of the economy have not been impaired, any acceleration of inflation should be temporary. Until supply fails to catch up with demand.
There are two problems here. One is that there could be pressure on the labor market to increase wages. Because even though the number of unemployed has increased, the expected rise in prices could be the basis for requests to increase wages, and the market pressure to increase production as soon as possible could encourage employers to offer higher wages. This could lead to a prolonged rise in prices, especially if there are changes in exchange rates as trade resumes. However, since it is about moving towards full employment, it should not lead to a more permanent acceleration of inflation. So that risk is not great.
It is different with monetary policy. As far as we can tell, the most important central banks are not inclined to react quickly, ie. to strive to stabilize prices as soon as possible. There is a good reason for that. Ever since the financial crisis of 2008-2009. monetary policy was in a state of emergency as interest rates were close to zero, while direct monetary interventions are a tool that central banks do not like. If inflation accelerated, monetary policy could be normalized. This means an interest rate that is slightly higher than the target inflation rate of approximately 2%. The American central bank has already adopted a new approach to monetary policy, which implies possibly a slightly longer period of faster inflation in order to achieve that, simply put, monetary policy determines the price level, and not that the price level determines monetary policy.
The risk is, of course, that there could be inflationary shocks or increased inflationary expectations, in which case it would be necessary to significantly increase interest rates. This is the risk pointed out by those who went through the inflationary seventies of the last century. At the end of which was a recession caused by the US central bank to crush inflationary expectations. This risk is small in my opinion, but many who understand it estimate that it is not insignificant.
But even if that does not happen, the eventual and desirable normalization of monetary policy - where, for example, the interest rate on short-term dollar government bonds would be somewhere around four percent - would have significant consequences for economies whose real currency is the dollar or the euro, because in they keep reserves with them. This would significantly complicate their financial situation. We shouldn't expect anything like the crisis of the early 80s, but it would be the end of the era of cheap money.
Overall, the risk of accelerated inflation is relatively small; a possible increase in labor compensation could lead to rising inflationary expectations; the greatest risk of a possible restrictive monetary policy would fall on countries that use foreign money as real money.
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