What should central banks do if there is a new shock to commodity prices and a stagflationary process in economies?
The conflict in Ukraine will give rise to a new shock to commodity prices (oil, natural gas, metals, wheat, etc.). In the United States and especially in Europe, there will therefore be a further surge in inflation and a further decline in the purchasing power of wages. So how should central banks react to this stagflationary process ? As this shock has nothing to do with monetary policy and causes growth to decline, central banks’ normal response is a more expansionary monetary policy, and therefore a postponement of monetary policy tightening.