Central banks can no longer really fight inflation

When central banks really fought inflation, they responded to excess inflation by driving up real interest rates, which led to a sharp fall in demand that pushed down inflation. This is the case in particular when inflation result s from a supply shock: demand ha s to be reduced by more than the fall in supply in order to reduce inflation. This policy is no longer acceptable today: central banks can no longer take the risk of a fall in activity, as they have new objectives of full employment, support for investment and growth-led deleveraging. So their response to inflation is inevitably soft, which means that inflation pushes down real interest rates and monetary policy does not curb inflation at all. Limited increases in nominal interest rates merely send the message that central banks are concerned about inflation . They do not mean that central banks are fighting inflation at all.