Europe’s Special Inflation Risks
If the economy recovers and fiscal stimulus turbocharges pent-up demand, a lot of bank credit could suddenly emerge from central bank money. Price growth will then begin to accelerate, and the European Central Bank will have a very hard time curbing it without having a functioning inflation brake.
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MUNICH – The increasing risk of a return of inflation in the United States and Europe is beginning to galvanize debates among economists. One key source of inflation fears is the expectation that, once the COVID-19 pandemic has been overcome by vaccines, pent-up demand will explode in an orgy of consumption. Moreover, today’s unprecedentedly large government bailout programs will have powerful inflationary multiplier effects.