1. Home
  2. Studies
  3. Global Inflation: Low for Long or Higher for Longer?
Markus Demary / Michael Hüther IW-Report No. 12 8. April 2021 Global Inflation: Low for Long or Higher for Longer?

Inflation has started to increase, and the return of inflation comes at a time in which economies begin to recover from pandemic-induced and lockdown-induced recessions. This raises questions about how much and how long inflation will go up as well as about whether central banks have to step-up against inflation at the cost of slowing down the economic recovery. Has “low for long” turned into “higher for longer”?

Download PDF
Low for Long or Higher for Longer?
Markus Demary / Michael Hüther IW-Report No. 12 8. April 2021

Global Inflation: Low for Long or Higher for Longer?

Download PDF

Share this article:

or copy the following link:

The link was added to your clipboard!

German Economic Institute (IW) German Economic Institute (IW)

Inflation has started to increase, and the return of inflation comes at a time in which economies begin to recover from pandemic-induced and lockdown-induced recessions. This raises questions about how much and how long inflation will go up as well as about whether central banks have to step-up against inflation at the cost of slowing down the economic recovery. Has “low for long” turned into “higher for longer”?

We look at the different possible factors that could drive inflation, like pandemic- and lockdown-induced pend-up demand, price-wage-spirals, fiscal policy and other relevant factors. We conclude from our analysis that inflation could possibly rise in the short-term, but that inflation will return to low rates in the medium-term. While pend-up demand will result in higher prices, the inflation effect will only be transitory and moreover concentrated on services related to tourism and accommodation and be absent in other sectors where digital alternatives leading to more competition are available.

Even in the case in which the combination of accommodative monetary policy and expansionary fiscal policy would close the output gap and drive the economy towards a state of overheating, we expect a low inflationary effect because of the flat Phillips-curve.

Thus, we do not expect any trade-offs for central banks between fighting inflation and supporting the economies to grow and to deleverage. Instead, we see a welcomed return of inflation towards its target value accompanied by an economic recovery that enables central banks to end their asset purchasing programmes and their negative interest rate policies in a natural way, that means we expect higher interest rates without risks to the economic recovery.

Download PDF
Low for Long or Higher for Longer?
Markus Demary / Michael Hüther IW-Report No. 12 8. April 2021

Global Inflation: Low for Long or Higher for Longer?

Download PDF

German Economic Institute (IW) German Economic Institute (IW)

Share this article:

or copy the following link:

The link was added to your clipboard!

More on the topic

Read the article
Challenging times for the US and EU - Where are the economic and monetary policies headed?
Sandra Parthie Event 21. November 2022

panel discussion: Challenging times for the US and EU - Where are the economic and monetary policies headed?

The Russian war of aggression on Ukraine triggered massive price increases. But even before that, there were high inflation risks due to the Corona pandemic and creeping deglobalization. How should governments and central banks respond now?

IW

Read the article
Markus Demary / Anna-Maria Hagenberg / Jonas Zdzralek IW-Report No. 50 28. September 2022

Financing Gaps of Companies during the Covid-19 Pandemic

For firms’ business and investment decisions their access to finance is a critical determinant. In times when access to finance becomes tight, corporations face either higher capital costs or they have to postpone their investment decisions when credit lines ...

IW

More about this topic

Content element with id 8880 Content element with id 9713