An undesirable, and possibly substantial, decoupling of inflation expectations from the central bank’s objective can occur if the policy response to inflation is not sufficiently determined – or is perceived not to be.
Of course, given the persistence of high energy prices that the global economy has confronted of late, policymakers cannot be complacent. Central bankers must reinforce their credibility and validate the confidence of market participants by actively leaning against inflationary pressures long before inflation itself builds.