Abstract:
We argue that the period of low inflation has come to an end based on six structural factors, which define the new inflationary environment: [...] How high will inflation rise? How long will the new inflationary environment last? How challenging is it for central banks to counteract these inflationary pressures? A stagflation like in the 1970ies seems possible given these trends. The energy-crisis made the transformation of our energy systems necessary, which is, however, progressing slowly, thereby contributing to a longer lasting energy-triggered inflation. The highest risk will be an energy embargo, resulting in a deep recession together with high inflation. In this case monetary policy might be forced to inject high amounts of liquidity into markets despite high inflation.