The fall 2022 edition of Kieler Konjunkturgespräche takes a closer look at inflation dynamics, the proper response of monetary policy and consequences for the global economy.
Strong demand during the post-Covid recovery, supply chain disruptions and exploding prices for energy, food and other commodities contribute to rising inflationary pressures worldwide. Meanwhile, price pressures are broadening considerably. Debt sustainability concerns – particularly in Europe – which were hidden under a surface of abundant central bank liquidity in a zero interest rate environment for a long time, may become visible again once the regime of low inflation, zero interest rates and monetary stimulus is ultimately coming to an end. As a result of such concerns over fiscal and financial stability, central banks appear restricted in their determination to fight inflation decisively. At the same time, headwinds for economic activity have increased, with geopolitical tensions darkening the outlook for international trade, and with high inflation weighing on consumer sentiment and real disposable incomes. Against this backdrop, the 105th KKG discusses the appropriate policy reaction to the recent surge in inflation. Does the situation require more aggressive tightening of monetary policy to keep inflation in check, or should central banks rather follow a slow and gradual approach? How badly does the mixture of high inflation, tighter monetary policy, distorted energy supplies and other repercussions of the war in Ukraine weigh on the outlook for the world economy? What is the role for fiscal policy? Are we heading for years of stagflation, or will inflationary pressures soon disappear once geopolitical tensions and supply chain issues recede?