That in turn may lead them to set higher wages and prices to compensate and thus to the elevated level of inflation persisting. Measures of inflation expectations for the year ahead, for both households and businesses, have moved upwards, though no more than one would expect given the outlook for inflation (Chart 11). Measures of inflation expectations further ahead, which might be more indicative of a fundamental shift in perceptions of the inflation climate, have though mostly remained well anchored (Chart 12). But this is something we are watching closely, in particular for any signs that higher inflation expectations are leading businesses to raise pay and prices. There are elements of all these mechanisms present in our latest projections, but there is a risk that they will turn out to be more powerful than in our central view. And, as noted earlier, there is the risk of further increases in the prices of commodities, especially that of oil. Certainly, my own judgment is that, if anything, inflation may prove a little more persistent next year than presently embodied in our projections. 7  This is sometimes referred to as the “battle of the mark-ups” in the unemployment literature; see e.g. P. R. G. Layard, S. J. Nickell and R. Jackman (1991), Unemployment: Macroeconomic Performance and the Labour Market. 6  BIS central bankers’ speeches  On its own, that might appear to imply that Bank Rate needs to rise faster than implied by the market yield curve that underpins our projections.
These trends show that the propensity to save and retain the funds in the banking system remains high. Household savings are growing dynamically, within the historical trends. However, the unique character of the crisis has implications on its structure. Given the unpredictability, the propensity for long-term savings is decreasing, while the share of these deposits in the total household deposits from April last year until now reduced by five percentage points. On the other hand, in the corporate sector, the growth rates are significantly above the historical average, with restraint from investment activity and growth of assets. The past crisis episodes were characterized by a reduction in corporate deposits, which shows that the corona-crisis prompts different behavior. The pandemic increases the propensity to hold liquidity and save, in conditions of pronounced and prolonged unpredictability. Besides the growth of savings in banks, in conditions of a pandemic, there is an increasing propensity of households to invest in real estate. Actually, in conditions of low interest rates, relatively stable disposable income, reduced possibilities and needs for consumption, change in the models of work, globally there is an increase in the demand for real estate and in the real estate prices. Unlike most economic indicators, which collapsed during the pandemic, real estate prices are increasing. In the EU countries, in the first half of this year, real estate prices registered an average growth of nearly 7%, compared with the growth of around 4% in the past few years.