Supply Disruptions Add to Inflation, Undermine Recovery in Europe
With supply constraints likely to persist, the challenge for policymakers is to support recovery without allowing high inflation to become entrenched.
When countries asked people to stay at home to control COVID-19, consumers cut spending on services and bought more manufactured goods instead. The reopening of economies boosted manufacturing output, but renewed lockdowns and shortages of intermediate inputs from chemicals to microchips caused the factory recovery to stall. Prices of core consumer goods rose rapidly as delivery times reached record highs — sparking a debate about inflation and the course of monetary policy.
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