Panicos Demetriades's picture
Affiliation: 
University of Leicester
Credentials: 
Professor of financial economics
Former Governor, Central Bank of Cyprus and ECB Governing Council member

Voting history

Should We Worry About Post-Covid Inflation?

Question 2: Which of the following will be the greatest inflationary (or deflationary) force facing the UK economy?

Answer:
The growth rate of the real UK economy
Confidence level:
Confident
Comment:
The growth rate captures aggregate demand pressures and summarises all the forces at play. The only exception to this that I can see is a scenario in which negative supply shocks reduce growth and at the same time increase inflation. However, I do not see any such shocks at the moment, disruption of supply chains and brexit will only have a small ans transitory effect on prices and will not lead to sustained inflation.

 Question 1: Which of the following scenarios is most likely to hold on average for most of the upcoming decade?

Answer:
Inflation will be at the current target rate
Confidence level:
Confident
Comment:
I agree with Andy Haldane’s views, which carry a lot of weight for me, as they are informed by all the research done to support the Bank’s monetary policy framework. The pandemic is exerting downward pressures on aggregate demand and these will continue well into 2021, as its unlikely we will return to normality any time soon. Fiscal policy only partially mitigates the negative effects on demand and so is monetary policy. Disruption of supply chains and increase demand for health products and services are reflected in relative price changes but overall should not lead to inflationary pressure. Brexit on the other hand is likely to result in higher prices for imported goods from the EU due to higher transactions costs and some trade diversion, as well as a weaker sterling, which could exert upward pressure on prices, but these pressures will not translate into sustained inflation, if anything they will help to get inflation up on target during 2021. Beyond 2021, we should see the UK economy adjusting to a post brexit and post pandemic equilibrium, with inflation more on less on target, as I expect monetary policy to do whatever it takes to achieve that target.

Should the ECB Reformulate its Inflation Objective?

Question 3: Which of the following best reflects your opinion on the following statement? “The ECB should explicitly recognize unemployment and/or economic growth as a secondary aim, secondary to its price stability mandate.”

Answer:
Strongly agree
Confidence level:
Extremely confident
Comment:
It already has! They just need to make it more clear in the Governing Council’s statements.

Question 2: Would you support increasing the ECB’s inflation target to a higher rate of inflation than the current 2% target?

Answer:
Strongly oppose
Confidence level:
Extremely confident
Comment:
The ECBs mandate is price stability - that’s not consistent with 4% inflation. To change the mandate requires an amendment of the EU treaty which has to be a unanimous decision by member states. Not in a million years would Germany agree to that.

Question 1: Which of the following best reflects your opinion on the following statement? “The ECB should explicitly state that it will allow inflation to temporarily exceed the 2% target following extended periods of low inflation.”

Answer:
Strongly agree
Confidence level:
Extremely confident
Comment:
I agree with the arguments out forward by Madame Lagarde. In addition, the fiscal response to the pandemic can only be maintained for as long as necessary in the knowledge that there is sufficient monetary accommodation, albeit indirectly through PEPP. It’s paramount to avoid raising taxes or tightening monetary policy before the economy recovers fully.

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