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Central Banks’ Day of Reckoning Is Here

Despite the recent moderation in price increases, high inflation will likely continue to challenge Western economies for a long time. Against this backdrop, central banks must work to restore public trust by abandoning their ivory tower and communicating more effectively with the citizens they serve.

TÜBINGEN – As energy prices continue to decline and the base effect of last year’s price increases takes hold, inflation rates across the Western world are expected to fall. Even so, prices will likely remain unacceptably high for the foreseeable future, making true price stability a distant prospect.

Moreover, rising wages and ongoing geopolitical tensions, together with long-term structural factors such as demographic trends and deglobalization, are expected to keep inflation expectations above central-bank targets, burdening Western economies and societies in the long run.

Now is the time for central banks to take decisive action and improve their communication strategies. Policymakers must urgently explain the reasons for the current high inflation, its consequences, and the measures taken to address it. This communication must not be limited to market participants, as citizen engagement is just as important, if not more so. After all, citizens are central banks’ most important partners in fighting inflation and protecting their own independence.

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