The head of the European Central Bank has warned that recent upheaval in the global economy threatens to result in long-lasting changes, keeping inflationary pressures higher than normal and complicating the role of monetary policymakers.
Speaking at the US Federal Reserve’s annual conference in Jackson Hole, Wyoming, on Friday, Christine Lagarde said central bankers had to be “extremely attentive that greater volatility in relative prices does not creep into medium-term inflation through wages repeatedly ‘chasing’ prices”.
“If global supply does become less elastic, including in the labour market, and global competition is reduced, we should expect prices to take on a greater role in adjustment,” Lagarde said. “If we also face shocks that are larger and more common — like energy and geopolitical shocks — we could see firms passing on cost increases more consistently.”