Global Inflation and Global Monetary Policy Tightening: Implications for the Euro Area

Abstract

Since the outbreak of the COVID-19 pandemic, global factors have played a much more important role in shaping inflation dynamics than over the previous two decades. As a result, global monetary tightening has been synchronised to an unprecedented degree, bringing to the fore the importance of cross-country monetary policy spillovers through aggregate demand, exchange rate and financial channels. After reviewing recent inflation developments, the article discusses how exchange rate spillovers can put upward pressure on the inflation outlook complicating the assessment of the ECB’s monetary policy stance.