Decisive factors included not only energy-related price rises but also central banks’ increasing tilt towards employment-driven monetary policy and the absence of central bank independence in many quarters. A monetary policy that is focused on safeguarding monetary stability, on the other hand, will tend to lessen volatility in economic activity.
If a central bank’s efforts to fight inflation are credible, wage moderation will also ensue. This, in turn, will have a stabilising impact on economic activity.