Ilustratīvs attēls
In a previous column I asked:
That column dealt with the first question and the answer was a definite yes. This column addresses the 2nd question.
My conclusion will be a) I hope not and b) I think not. Here are my arguments; as I often do, using Latvian data when relevant.
Right now, inflation is rising due to the pandemic subsiding and the economies reawakening. A good example of the difference between a short-term or transitory increase in inflation versus long-term sustained increase in inflation can come from a look at oil prices. Oil is an input in many industries and its price acts as a cost for firms. Higher oil prices, higher costs – and firms will try to pass on those costs to you and me with higher prices, causing higher inflation.
This is happening right now as can be seen from Figure 1. During lockdowns in the beginning of the pandemic planes did not fly, demand for oil plummeted and so did its price, causing deflationary pressure. Now, with the reopening of economies, demand for oil is up again and so is its price, causing inflationary pressure. Simple.
