The increase in consumer prices, however, remained more limited compared to producer prices inflation. Thus, the gap between producer and consumer inflation has recently risen well above the long-term average in many advanced and emerging economies. For instance, the PPI in the euro area has risen to almost five times the area’s CPI. As Fed Chair Powell mentioned in his Jackson Hole Symposium welcoming remarks, during the pandemic, we saw that a narrow group’s contribution to inflation dominated price developments. For example, prices of consumer durables, which had been declining on average over the 25 years preceding the pandemic, became one of the groups that contributed the most to the recent rise in inflation with the effect of supply constraints. During the process of re-opening and economic normalization, energy and services prices significantly increased globally. Global central banks consider that high price increases in some sectors stemming from energy and the pandemic will be temporary as demand composition normalizes, supply constraints ease and base effects are eliminated. In the upcoming period, these factors will have a disinflationary effect in our country as well. In global central banking practice, while determining the monetary policy stance, central banks take into account core inflation indicators adjusted for short-term incidental factors that are outside the control of monetary policy. For the reasons I have just mentioned, extraordinary conditions brought about by the pandemic  8  increase the importance of core inflation indicators, which are used to measure the underlying trend of inflation adjusted for short-term volatility.

But, in the gestation of asset price bubbles there was the commitment that if and when the bubble burst, the Fed would take care of the mess. This is exactly the same as the build up of currency mismatches in emerging markets when authorities promise to ensure exchange rate stability. In addition, we have witnessed a messy bail out of banks, and more recently, and more worrisome, bail out of countries with weak public finances. The issue of sustainability has become very relevant, in particular on the fiscal sphere. Economies cannot live forever beyond their means, and a serious effort of fiscal consolidation must be made, in particular in fragile industrial economies. It is ironic that after going through a very complex financial crisis, we are now worried about a very traditional crisis, caused by fiscal imbalances in the context of a fixed exchange rate regime, with potentially serious financial ramifications. The type of crisis that was analyzed and modeled in international finance at the most intellectually prolific time of Pentti Kouri. He would certainly have a lot to say about this. References Bordo, M., B. Eichengreen, D. Klingebiel and M.S. Martinez-Peria (2001), “Is the Crisis Problem Growing More Severe?” Economic Policy 16(32): 51–82. De Gregorio, J. (2009), “La Macroeconomía, los Economistas y la Crisis”, Cuadernos de Economía, Latin American Journal of Economics 46(134): 149–159. English version, Economic Policy Paper No. 33, Central Bank of Chile. De Gregorio, J. (2010), “Monetary Policy and Financial Stability: An Emerging Markets Perspective”, International Finance 13(1): 141–156.