This year’s Spring Conference held in Eltville by the Bundesbank’s Research Centre focused on “Structural changes and the implications for inflation”. A large number of researchers from central banks, universities and other institutions based in Germany and abroad – including representatives from Harvard University and the European Central Bank – came together to discuss this topic. 

© Oliver Rüther

The conference was jointly organised by Denmark’s central bank (Danmarks Nationalbank), Norway’s central bank (Norges Bank) and the Bundesbank. It provided a platform for numerous researchers to present current findings and results and set the stage for an in-depth academic dialogue. The presentations and discussions at the conference focused, amongst other things, on the inequality of consumption in the digital age and the question of how households respond to inflation expectations.

Participants were welcomed by Falko Fecht (Head of the Research Centre). Bundesbank President Joachim Nagel spoke in a video message.

President Nagel highlights price-driving developments

Mr Nagel said that he was very pleased that the conference centred around this topic. He, personally, was not convinced that the low inflation rates of the past decade will return.

For one thing, geopolitical uncertainties could result in additional price pressures. We have just learned the hard way that cost-efficient global production chains and trade patterns may come to a sudden halt, Mr Nagel said. He continued by saying that, whilst it clearly makes no sense to fully abandon the advantages of an international division of labour, some form of de-risking seems reasonable in order to improve resilience – especially in the case of strategically important goods. We should keep in mind that greater security for supply chains is likely to come with some additional price pressures, he cautioned.

Demographic change affects inflation

Demographic change could also affect inflation developments. A shortage of labour is becoming more and more visible in developed countries, Mr Nagel observed, going on to remark that the potential labour force will decrease on average by 80,000 people every year from 2026 onwards. This development could lead to persistently higher wage growth and, as a by-product, to stronger inflation.

The Bundesbank President also addressed the need for economies to decarbonise. “Climate change has already caused significant damage, Mr Nagel said, adding that the far-reaching restructuring of the economy implied by decarbonisation could lead to inflationary pressures. However, it is not entirely clear how decarbonisation will affect inflation. For instance, climate policy measures could also have a price-lowering effect.

The interplay of the three structural developments outlined above could lead to some sort of “sweet spot” for monetary policy, Mr Nagel concluded, explaining that inflation would then be at about 2% and the level of interest rates would not be too high but at a safe distance from the effective lower bound. “But if there is more price pressure in the medium-term, we must take action against it,” he remarked.