Moreover, these decisions may be postponed given the large-scale changes concerning the regulation of greenhouse gas emissions and corporate taxation. These transformations can significantly change the economic situation in many industries and the return on investment in them. Such uncertainty is able of decelerating capacity expansion globally. In these conditions, the aggregate supply will be less elastic, responding less flexibly to the pick up in demand even over the mid-term horizon, compared to previous years. 1/4  BIS central bankers' speeches  Coupled with the accommodative monetary policy and fiscal policy of major economies, all these factors strengthen the risk that the acceleration of inflation both in this country and in the majority of other countries is of a more sustainable nature than perceived at first glance. In the Russian economy, demand is growing energetically and sustainably. This is especially noticeable in the non-food segment. People continue to actively buy household appliances, construction materials, and furniture. The change in car sales is a clear manifestation of the pick up in domestic demand. In recent months, their sales have exceeded the 2018 level, which was a record high compared to 2014. The sales of apartments have increased considerably. To finance these large purchases, people use their savings, including money saved due to restrictions on foreign tourism, and take out more loans. In the services sector, the recovery has not yet completed mainly due to remaining anti-pandemic restrictions. The demand for labour is bouncing back, with some industries noting a certain deficit of labour force.

We may see now that in recent months the proinflationary impact of demand has become prevailing. The fundamental difference of the so-called ‘cost inflation’ from ‘demand inflation’ is how it influences the physical volumes of consumption. In case of ‘cost inflation’, that is, supply shock, prices are growing, but consumers have to buy less in response. Businesses can only partially translate their costs into prices, as demand is limited. Whereas, if both prices and sales volumes grow, and this is exactly what we are seeing now across quite a few market segments, it means that the expansion in demand is by far exceeding the impact of supply-side factors. Therefore, it means that we are facing ‘demand inflation’. Finally, elevated inflation expectations do make a considerable contribution to inflation. In anticipation of price increases, consumers are ready to start buying earlier than they previously planned. Thus, given the unanchored expectations even transitory price spikes may become more sustainable. Why is the acceleration of inflation posing a threat? It is more difficult for companies to stick to their business plans, predict financial flows, and hedge against volatility. It is the most vulnerable citizens that are hardest hit by inflation. Low-income families spend increasingly more funds on essential goods. High inflation boosts inequality, lowers social security, and undermines the financial standing of most families. That is why our main task is to stabilise price growth 2/4  BIS central bankers' speeches  as soon as possible by curbing inflation expectations and not allowing inflationary spiral to exacerbate.