These challenges will be the focus of my talk today. Concretely, I would like to focus on three main challenges. The first challenge concerns the possible risks and implications associated with a prolonged period of low inflation. I will focus on the driving forces of current low inflation and discuss how monetary policy can best address risks to price stability in this environment.
However, inflation pressures occur when remuneration goes up and firms just pass the higher costs on to consumers. With the relative lack of competition in our product markets, that’s typically what happens. The end result is a sustained rise in inflation, which in turn keeps nominal interest rates high and undermines competitiveness.