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.

The spike in oil and commodity prices last year, which initially appeared as a supply shock at the individual country level, in fact represented economic overheating at the global scale, and domestic monetary policy tightening may not have been the most effective way to deal with this situation in the global context. In addition, at the present juncture, the unprecedented and contagious slowdown in each country’s economies as a result of global linkages means that monetary policy now needs to respond to the monetary policy stance in other countries. This has added an extra international dimension to policy making, in addition to previous considerations such as the impact via capital flows and trading partners’ economies. 4. Testing the limits of monetary policy under globalization  But what exactly are these changes that globalization has brought about to traditional monetary policy? And in particular, how have these changes affected central banks? The first aspect has been the challenge to the basis of our traditional monetary policy decision-making process. Traditional conduct of monetary policy would rely on the accuracy of our forecasts of the economy, of inflation dynamics, and of our understanding of how the economy works. With globalization, making accurate economic forecasts become more difficult. The recent economic cycle has demonstrated that shocks to the economy and the price level have been both rapid and frequent. This is most clearly demonstrated by the volatility in  2  BIS Review 33/2009  inflation in the past year.