However, due to the pace of the recovery, disruptions and bottlenecks in production chains caused by anti-pandemic restrictions, shifts in the structure of final demand from services towards products, a number of industries faced a situation when the expansion of demand surpassed their potential to ramp up output. This involves not only a shortage of production capacities, but also of labour resources. Among other reasons, this was caused by restrictions on the inflow of labour migrants and a larger number of employees who are on the sick leave 1/4  BIS central bankers' speeches  or in self-isolation. Although many of the factors fuelling inflation this year are due to supply issues, this is the expansion of demand which makes it possible for companies to simultaneously and fully pass their increased costs on to output prices and build up their output. No less important is the fact that higher inflation expectations also boost demand, especially for durable goods. In the middle of this year, households’ and businesses’ inflation expectations in Russia rose to their five-year highs. When the expectations regarding future inflation are elevated, households have a lower propensity to save and rather prefer to spend more for current consumption. Moreover, as interest rates are low, households opt to invest in higher-risk securities market instruments, rather than deposit their savings. Companies tend to revise their prices more often. Employees assume that the growth rate of wages will be higher.
And third, a reinterpretation of central banks’ financial stability mandate towards a more active role in crisis prevention is necessary to reduce the need for another round of extensive crisis management in the future. This, in a nutshell, is the main argument of my speech today. In what follows, I will elaborate on the rationale behind the conventional and unconventional measures that central banks have adopted to mitigate the crisis, and explain why central banks need to play an active role in the new regulatory framework which is being implemented in response to the crisis. Central banks may not exactly have a reputation for being big innovators. But just as the Foire du Valais has developed into French-speaking Switzerland’s pre-eminent fair over the past 50 years by successfully combining innovation with its core strengths, central banks have evolved over the past few decades by remaining focused on their core mandate – price stability – while adapting to a changing environment and being open to learn new lessons when they present themselves. The financial crisis was such a moment, and a reinterpretation of central banks’ financial stability mandate is an important lesson to take away from it. Preventing the collapse: conventional monetary policy The economist John Kenneth Galbraith quipped that financial memory is brief and that “there can be few fields of human endeavor in which history counts for so little as in the world of finance”.