Let me elaborate on my view. The assessment of price developments forms the basis of monetary policy decisions. The following two points should be noted when assessing current developments. First, it is necessary to examine a broad range of indicators, including not just the CPI but also the corporate goods price index (CGPI) and the GDP deflator.
But such a tightening would induce a substantial re-pricing of risk and a potential downloading of these risky assets from investors’ portfolios. The more agents have accumulated risky assets on the expectation that rates will remain low, the more the decision to finally increase policy rates will produce some disruption in asset markets. The experience of 1994 is quite interesting in that respect.