But this step-up should not ignite an acceleration in cost and price pressures, given the remaining slack in key factor and product markets. 10. Third, there are important upside risks to this baseline assessment of inflation. We have seen within this region, a recent increase in the upstream producer prices in China, which points to temporary frictional costs as well as some eﬀect from commodity prices, but also the possibilities of the early emergence of underlying cost-push pressures. Demand-pull price increases could pick up and rise to the fore in the latter part of the year if the growth recovery continues apace, and it could interact with the concurrent firming in short-run supply-side costs. Indeed, these risks take on a particular relevance at the current conjuncture, because the near-term trajectory for inflation represents one of the key uncertainties for financial markets. Markets may be particularly vulnerable to signs of accelerating inflation in the data, which could trigger some volatility in asset prices. 11. Fourth, the interaction of the cyclical dynamics with longer-term secular trends on prices is likely to reassert going forward. Before COVID-19, many countries faced persistently low price inflation, a trend driven by a complex mix of secular factors, such as technological progress, especially automation and digitisation, wage inequality, and demographic trends. All of these factors bring about important long-term relative price shi s in their wake. But post-COVID, their pass-through into a general increase in prices comes against another key set of filters.

These include the slope of the Phillips Curve, central bank’s policy responses together with the constraints imposed by elevated public debt levels, and importantly, agents’ expectations. Expectations in Macroeconomics 12. This brings me to my second set of comments. One of the truly revolutionary developments in macroeconomic analysis has been the recognition that expectations are central to the behaviour of agents. Most of us would probably reach back to at least Keynes’ General Theory, as marking its formal induction into general equilibrium macroeconomics. The theory and practice of macroeconomic expectations has evolved quite rapidly since then. In particular, Robert Shiller and George Akerlof were key figures in formalising the idea that changes in expectations may manifest as exogenous shocks rather than factor in endogenously as posited by the theory of rational expectations, thus giving analytical form to Keynes' “animal spirits” in macroeconomic research. [3] 13. More recently, Shiller and Akerlof have also led a revival in the interest of expectations in economics [4] . Placing a modern contextualisation to “animal spirits”, they describe it as “a restless and inconsistent element in the economy. It refers to our peculiar relationship with ambiguity or uncertainty. Sometimes we are paralyzed by it. Yet at other times it refreshes and energizes us, overcoming our fears and indecisions.” I think we can quite easily relate to such descriptions. We have seen the importance of expectations in determining aggregate outcomes during crisis, as well as in specific markets and cycles.