The inflation psychology is kicking in

April 21, 2022

After a decade of central banks struggling to bring inflation up to target, the start of 2022 has been characterised by a shift in the inflationary environment worldwide. US inflation is at its highest level in over 40 years, with other DM trailing close behind. Eurozone annual inflation reached 7.5% in March, up from 5.9% in February and 5.1% at the start of the year. The average DM CPI at end-March was 5.6% YoY and 7.2% in EM, signalling the start of a new inflationary era. Within this context, market attention has shifted to uncovering the psychological mechanisms which underpin inflation and ensure its self-fulfilling prophecies come to pass, as the expectation of higher prices in the future reinforces the inflationary narrative. In this interview, Pascal Blanqué uncovers some of these mechanisms and explores the link between inflation and psychology.

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