slide 5 ). these correlations were sometimes not easy to detect simply because, contrary to headline inflation, underlying price pressures are often moving through the global economy at varying speeds, as it takes time for changes in supply and demand in one country to affect prices elsewhere. of course, such correlations say little about the ultimate source of the shock, and hence the appropriate policy response. in an integrated global economy, inflation may co - move across economies for two reasons : either because of common shocks that hit all countries simultaneously, even if not symmetrically, such as the oil shocks of the 1970s, or because of idiosyncratic or regional shocks, such as the asian financial crisis of 1997 or the euro area sovereign debt crisis of 2012, that are large enough to affect output and prices worldwide. today, we are seeing both forces at work. household wealth from accumulated savings boosts corporate pricing power the common shock relates to the impact of the pandemic on global household wealth and firms ’ pricing power. strict lockdowns across virtually all countries allowed households around the world to accumulate huge amounts of involuntary excess savings. in the united states, these amount to about usd 2. 7 trillion, or 16. 9 % of annual disposable income in 2019. in the euro area, this figure is € 900 billion, or 12. 4 % of annual disposable income in 2019. to a considerable extent, these savings stem from the forceful fiscal policy response to the crisis. in the euro area, for example, furlough schemes have helped keep many people in employment, protecting labour incomes, while us households benefited from generous stimulus cheques ( slide 6, left - hand side ). although excess savings are distributed unequally both across and within economies, they have visibly boosted corporate pricing power by generating an environment in which consumers worldwide are both more willing and more able to tolerate price increases. 3 / 8 bis central bankers'speeches this can be seen in two ways. one is through the particularly strong price dynamics in contact - intensive services industries. restaurants, cinemas and other service providers are increasing their prices as economies reopen ( slide 6, right - hand side ). in the euro area, these sectors are currently the main drivers of services price inflation, which is at its highest level in 20 years. these catch - up effects are not happening simultaneously across economies, as social contact restrictions are being removed at different speeds. but they are happening in most advanced economies because fiscal policy has

isabel schnabel : the globalisation of inflation speech by ms isabel schnabel, member of the executive board of the european central bank, at a conference organised by the osterreichische vereinigung fur finanzanalyse und asset management, vienna, 11 may 2022. * * * accompanying slides can be found on the european central bank ’ s website. there are two competing views on the impact of globalisation on domestic inflation. one view is that the global component of inflation by and large reflects price swings in energy and commodity markets. 1 globalisation may affect underlying inflation, but these effects are judged to be economically small. the alternative view is that global economic slack matters for domestic underlying inflation and that globalisation may have lowered the sensitivity of inflation to domestic slack, that is the slope of the phillips curve. 2 although the strength of such global factors may differ across economies, a failure to properly account for them may result in significant forecasting errors. this is the “ globalisation of inflation ” hypothesis. in my remarks today, i will argue that the pandemic, and more recently russia ’ s invasion of ukraine, are providing tangible evidence in favour of the second hypothesis. large global excess savings and exceptionally strong global excess demand for many internationally traded goods and commodities have contributed to raising the pricing power of firms across advanced economies. this has fed into underlying price pressures even in countries where domestic slack remains present. in the euro area, the strong surge in selling prices has mitigated the impact of the adverse termsof - trade shock from higher commodity prices and has boosted corporate profits in sectors most heavily exposed to global demand. as a result, euro area firms have recently been as much exporters of inflation – through higher export prices – as they have been importers. the extent and persistence of future underlying price pressures will depend on two things : the degree to which firms will be able to continue passing higher input costs on to consumers, and whether higher profits will translate into higher wages. the fact that inflation is, to a considerable extent, driven by global factors does not mean that monetary policy can or should remain on the sidelines. on the contrary, persistent global shocks imply that the firm anchoring of inflation expectations has become more important than ever. and as risks are growing that current high inflation is becoming entrenched in expectations, the urgency for monetary policy to take action to protect price stability has increased in recent weeks. is inflation in the euro area