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CHRONIC. Moving to a higher inflation target or accepting a recession and, perhaps, a financial crisis: Fed and ECB are at an impasse.
© Mathieu Pattier / MAXPPP / PHOTOPQR/OUEST FRANCE/MAXPPP
By Patrick Artus*
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With the sharp rise in demand for goods that followed the Covid crisis, and with the problems with the supply of energy, metals, agricultural products that resulted from the war in Ukraine, inflation will reach a very high level. The peak of inflation could exceed, in 2022, 9% in the United States and in the United Kingdom, 8% in the eurozone.
Some of this inflation will disappear when the prices of raw materials will stabilize, even at a high level; but some of it will persist, because wages, even poorly indexed to prices, accelerate; because companies that have pricing power (the ability to raise their prices) pass significant price increases; we even see an increase in the profit margins of companies in the United States. Of…
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