“Whether inflation is caused by demand or by supply has very important implications for monetary policy making. Bank of Japan Governor Kazuo Ueda said on Wednesday.
Additional comments
In response to supply-side inflation, central bank decision-making faces a difficult trade-off between considerations of economic activity and the need to tackle rising inflation.
The increase in inflationary pressure has been due to supply factorssuch as rapidly rising prices of raw materials, labor shortages, and disruptions to supply chains.
Recent world inflation has also been influenced by demand factorssuch as the effects of the expansive fiscal and monetary policy measures and the repressed demand after the spread of the pandemic.
In light of these points, it is extremely important to carefully analyze various indicators and examine the underlying price trend.
Market participants, firms, and households all have different expectations formation, given different perceptions of current inflation.
Inflation expectations are likely to be influenced by your experience or psychological conditions, as well as by central bank communication.
It may be difficult to deny the possibility that we are already in a new normal different from the period of inflation “low for a long time”.
As a consequence of the increase in the variety of tools and also of the advances in the elaboration of monetary policy, central banks need to be more careful with the way they communicate.
In the scheduled monetary policy review, the BoJ will examine the interaction between the measures it has taken and economic activity, prices and financial conditions, as well as the positive and secondary effects, based on insights gained in Japan and in abroad.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
