The Consequences of the Financial and Economic Crisis on Inflation

In view of substantial increases of national debts and the central bank money supply, it has been mooted that a high to very high inflation rate must be expected in the medium to long run. Under the condition that central banks will be able to sufficiently cut down their money stocks once the crisis abates, and provided that governments propose creditable measures to consolidate their public finances so that inflation expectations will stay anchored, there is little danger of a long-term increase of the inflation rate as consequence of the expansive monetary and fiscal policy. In the medium to long run, we are faced with a greater risk of inflation driven by a new surge in global demand for agricultural and energy comodities while their supply is growing at a more modest rate.