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Ifo President Fuest is convinced that, despite the fact that inflation rates are falling again, over the medium term inflation in the advanced economies, will no longer be as low as it was in the pre-war and pre-COVID period.
Fuest, head of the renowned Ifo Institute for Economic Research in Munich, spoke at an internal lecture event for employees on the subject of “The end of low inflation?”
Fuest outlined the main reasons for the current inflation - supply constraints, expensive raw materials and energy, and labour shortages.
While the present inflation is strongly driven by the energy price shock and its repercussions, in the medium term it is determined by a number of fundamental trends: “These include demographic change, with a shrinking workforce, as well as decarbonisation. Although a lot is being invested and produced, ultimately the existing capital stock is just being replaced and no additional value creation capacity is being created”, said Ifo’s President. Both trends were driving inflation.
He thought that the latest turmoil in the banking sector would have a slight dampening effect on economic activity, as banks restricted their lending. However, the European Central Bank (ECB) had acted correctly with its latest interest rate hike and was continuing to curb inflation.
In a short interview for GoAheadOnline, Ifo President Fuest and Munich Re’s chief economist, Michael Menhart, gave exciting insights into the current situation of the banking sector as well as the development of inflation in the coming years. A must for those interested in the economy!