A more recent example is the people fleeing from the war in Syria, and we are now seeing a similar development in connection with the war in Ukraine. Depending on the circumstances, war may also give rise to a period of sharply increased geopolitical uncertainty. This may mean that countries that are not directly involved in the war choose to arm themselves and thus increase public spending. However, greater uncertainty about the future may also mean that the private sector chooses to postpone investment and increases its precautionary saving. There are thus counteracting effects on aggregate demand and thereby on inflation. All in all, there are thus a number of different ways in which war can lead to inflation rising, both in individual countries and in the world economy as a whole. Four periods of high inflation since 1900 This is something that is quite clear when studying a longer time series for inflation. Figure 1 shows inflation in Sweden from 1900 onwards. Figure 1.
The August 2020 Financial Stability Report (FSR) showed that the cumulative loss of UK economic output associated with the outbreak of Covid-19 would need to be around twice as big as the Monetary Policy Committee’s central projection. 21  12  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  12  The post-crisis capital framework has proved resilient so far and we need to wait out the Covid stress before we can complete our evaluation. In the meantime, it is imperative that Basel jurisdictions implement the last part of the post-crisis reforms – what in the UK we call Basel 3.1 and elsewhere is sometimes referred to as ‘endgame Basel 3’. These reforms have nothing to do with the design of regulatory buffers and the overall Basel 3 capital resource framework built in the aftermath of the Global Financial Crisis, which was in large part all about the numerator of the capital ratio. By contrast, Basel 3.1 is about how to ensure risk weights, especially internally-modelled risk weights, are measured robustly – it’s about the robustness of measuring the denominator of the capital ratio. We should be getting on to implementing these measures consistent with the agreements we made when sitting around the Basel table. At the same time, we should not ignore the evidence that points towards issues with the original Basel 3 vision on buffer usability.