Gabriel Makhlouf says changes in the availability of goods and services can affect prices, necessitating more aggressive interest rate adjustments via IrishTimesBiz
Mr Makhlouf noted that the International Monetary Fund and other international institutions were warning of the “considerable negative effects” from a fragmentation of global trade along geopolitical lines.
“While it is difficult to predict the exact impact of geoeconomic fragmentation on inflation, it is clear that changes in global trade patterns and shifts in supply and demand could potentially have significant and unpredictable effects on the price of goods and services,” he said.Global fragmentation could lead to “an increase in the volatility of inflation”, Mr Makhlouf said.
Mr Makhlouf highlighted that Central Bank research “indicates that the costs of reshoring are larger if it results” in local firms being more able to raise prices due to less competition. It also leads to lower productivity, according to the research. “By signalling a clear increase in preference for local inputs, localisation policies could – unintentionally – encourage firms in supported sectors to increase their price markups.”
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