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How Large Is the Risk of Stagflation in the Eurozone?

Author

Listed:
  • Markus Demary

    (Institut der deutschen Wirtschaft Köln e.V.)

  • Michael Hüther

    (Institut der deutschen Wirtschaft Köln e.V.)

Abstract

The rapid recovery of demand combined with supply constraints has led to rising prices during the past months. This is evident in oil and gas markets, but also in international trade, which has been thrown out of step by bottlenecks at Asian ports. This situation creates a trade-off for the European Central Bank, because a more expansionary monetary policy cannot mitigate the supply bottlenecks and supply-side restrictions, while a more restrictive monetary policy would slow down the economic recovery. For this reason, key interest rate hikes in the eurozone are not to be expected for 2022. If the supply-side factors become persistent and wage policy tries to pass the price effects on, monetary policy will be forced to become restrictive.

Suggested Citation

  • Markus Demary & Michael Hüther, 2022. "How Large Is the Risk of Stagflation in the Eurozone?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 57(1), pages 34-39, January.
    • Handle: RePEc:spr:intere:v:57:y:2022:i:1:d:10.1007_s10272-022-1025-x
    DOI: 10.1007/s10272-022-1025-x
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    References listed on IDEAS

    as
    1. Demary, Markus & Hüther, Michael, 2021. "Global inflation: Low for long or higher for longer?," IW-Reports 12/2021, Institut der deutschen Wirtschaft (IW) / German Economic Institute.
    2. Nöh, Lukas & Rutkowski, Felix & Schwarz, Milena, 2020. "Auswirkungen einer CO2-Bepreisung auf die Verbraucherpreisinflation," Working Papers 03/2020, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    3. Koester, Gerrit & Grapow, Helen, 2021. "The prevalence of private sector wage indexation in the euro area and its potential role for the impact of inflation on wages," Economic Bulletin Boxes, European Central Bank, vol. 7.
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    Cited by:

    1. Hussain, Syed Asad & Razi, Faran & Hewage, Kasun & Sadiq, Rehan, 2023. "The perspective of energy poverty and 1st energy crisis of green transition," Energy, Elsevier, vol. 275(C).
    2. Michael Grömling & Jürgen Matthes, 2022. "Inflation ist kein wirksames Heilmittel gegen eine hohe Staatsschuldenquote [Inflation is not an Effective Remedy for High Public Debt Ratio]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 102(11), pages 881-884, November.
    3. Banna, Hasanul & Alam, Ashraful & Chen, Xihui Haviour & Alam, Ahmed W., 2023. "Energy security and economic stability: The role of inflation and war," Energy Economics, Elsevier, vol. 126(C).

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    More about this item

    Keywords

    E21; E31;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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