In particular, there has been a shift from bank to bond funding in the last decade, with bond debt increasing from 16% to 24% of non-financial corporations’ total debt. The faster policy pass-through to bond rates than to bank rates implies faster transmission. Moreover, loan origination is contracting rapidly judging by the short lag from the first rate hike. The evidence available shows a strong econometric relationship between Bank Lending Survey (BLS) credit standards and a so-called credit impulse a couple of quarters later, and likewise between the credit impulse and GDP growth. 15 The first link in the chain – between the BLS and the credit impulse – is already evident. We should expect to see the latter link to real activity assert itself soon. Third, as regards the cash flow channel of monetary policy, we have seen a significant shift of funds between overnight deposits (with very low remuneration) and time deposits (whose remuneration is more sensitive to market interest rates). Furthermore, in net terms, money supply is decelerating rapidly, with M3 growth slowing from around 9% in September to 4% in January. Fourth, the housing sector is a key area to watch given the turnaround in financial conditions, as well as the sharp increase in house prices in some economies over the last decade. There was significant evidence of exuberance in this market in some countries before the pandemic, as has been repeatedly emphasised by the European Systemic Risk Board.
6 In this regard, the symmetry of the downward response is also an open question. Some support for this hypothesis can be found in recent developments in upstream stages of the price formation process. In particular, non-energy industrial consumer prices are still accelerating (as the flash estimate for January shows). However, industrial prod ucer prices (excluding energy) have decelerated significantly since last spring and this deceleration is rather widespread among components. In any case, the transmission and broadening of inflationary pressures is occurring at different speeds and intensities across expenditure components. Pressures on underlying inflation have so far been highly concentrated in particular expenditure items like household equipment and maintenance, transport, and activities involving more social contact. Some of their prices are more cyclically sensitive, others are more directly affected by the increase in the cost of energy, food prices or bottlenecks, while, in general, a fast pass -through has been facilitated by particularly strong demand during the pandemic (especially in the case of durable goods) and the reopening phase (notably in the case of services). These items’ prices continued increasing very strongly in December, in both year-on-year and month-onmonth terms, pointing to strong underlying inflationary pressures. 7 Excluding these items from the basket, core inflation stood at 2.8% in December, 8 with a slight upward trend that also points to an incomplete and slow pass-through.