Claudio Borio, chief economist at Bank for International Settlements5, told German newspaper FAZ that the risks of an extended period of high inflation had increased despite current price declines in many parts around the globe.
The ‘easy’ gains in reducing inflation are now reaped,” Borio added, adding that core-inflation — which measures the inflation without fluctuating energy and food prices — is “more persistant” and has “stabilized or even increased” levels.
He said that one of the reasons why this happens is because people adapt their behavior when inflation increases over a long period of time. This, in turn, leads to it becoming entrenched at a very high level. Borio explained that this has a direct impact on the relationship between rising prices and wages.
To bring inflation under control, governments must consolidate their budgets. Borio stated that reducing public spending will reduce the pressure of aggregate demand, and help central banks fight inflation.