Source: European Parliament
Using the 2022-2023 experience as a benchmark, we examine the challenge the ECB faces as it confronts a new energy-driven supply shock, reaching three main conclusions. Modern cost-price transmission channels are such that even a temporary energy shock tends to produce persistent and broad-based inflationary effects. Mitigating fiscal measures increases inflation persistence and the cost of maintaining price stability. Current consumer price developments resemble those after the 2022 crisis. We suggest a simple “rule of thumb” to complement traditional econometric models in signalling a potential need for monetary tightening.
Cinzia ALCIDI, Ignazio ANGELONI
Economics and Monetary Issues