Inflation results from a distributional conflict approved by the central bank

The observation of the past shows that the presence of inflation requires: A distributional conflict, i.e. companies react to an increase in wages (in the wage share of GDP) by raising their prices. This distributional conflict is more inflationary the tighter wages are indexed to prices. The central bank to approve the distributional conflict, i.e. not try to prevent the rise in wages and prices with a restrictive monetary policy. Such a situation prevailed in the second half of the 1970s and early 1980s. Today: Wage earners lack sufficient bargaining power for there to be a distributional conflict . A sharp decline in the participation rate and a sharp rise in unionisation would be needed to give wage earners sufficient bargaining power for there to be a distributional conflict; The degree of wage-price indexation is very low; Even though central banks have an expansionary bias, they would react to faster increases in wages and prices and would not pursue an accommodating policy towards inflation as they did in the late 1970s . This makes a true return of inflation highly unlikely.