Inflation in OECD countries is expected to be structurally higher in the future due to the combination of several factors. If inflation is structurally higher, it will be necessary to consider raising central banks’ inflation targets to prevent them from having to conduct a perpetually restrictive monetary policy, in the view of analysts at Natixis
Inflation is expected to be structurally higher in the future
“Inflation in OECD countries is expected to be structurally higher in the future for several reasons: Population ageing; Reshoring from emerging countries, rising production costs in these countries and geopolitical tensions; The energy transition (higher cost of renewable energy, strong demand for commodities, etc.) and the costs of climate disruption; Greater bargaining power for wage earners and unions.”
“If inflation is spontaneously significantly higher on average, then retaining an inflation target of 2% would require central banks to constantly keep real interest rates abnormally high and therefore to constantly and needlessly weaken the economy. It is important to understand that this is not about changing the inflation target because of a short-term inflation shock, but because of the transition to permanently higher inflation for multiple reasons.”