Inflation: a look under the hood

Speech by Mr Claudio Borio, Head of the Monetary and Economic Department of the BIS, on the occasion of the Bank's Annual General Meeting, Basel, 26 June 2022.

BIS speech  | 
26 June 2022

After so many years of struggling to lift inflation up to target, central banks are again facing the challenge of bringing it down. This year's AER looks at inflation "under the hood" to examine more closely how its engine works. It examines how individual (sector-specific) price changes interact with the change in the aggregate price index – inflation proper – and how wage- and price-setting is influenced not only by cyclical factors – economic slack – but also by structural ones and, importantly, by the behaviour of inflation itself. As a result, we characterise the inflation process as two very different regimes – a low-inflation and a high-inflation regime – and self-reinforcing transitions across them. The analysis provides new insights into how to adapt policy to those regimes and to the transitions across them.

Presentation slides