Almost all major advanced economies now have an inflation aim in the region of two percent, whether formally instituted as a policy target or as a longer-term goal.The impact of a commodity price shock on inflation provides a good illustration of the difference between the initial impact and the longer-term impact of a shock. Most obviously, the trend increase in the share of services in economic activity in high-income economies means that core inflation will be increasingly determined by domestic factors, given that services are less tradable than manufacturing (see Chart 6).Share of services in core inflation in the euro areaNote: Core inflation refers to HICP excluding energy and food.In a similar vein, the declining share of energy in the production functions and consumption baskets of advanced economies means that the importance of common energy shocks for domestic inflation rates is diminishing, both through a lower direct impact of fluctuations in commodity prices on headline inflation and the weakening of second-round effects.The structure of the international monetary system may also contribute to divergent inflation outcomes. Christine Lagarde, President of the European Central Bank (ECB), is scheduled to deliver her remarks on the monetary policy outlook in a press conference at 12:30 GMT. Discover more about working at the ECB and apply for vacancies.In my remarks today, I will discuss some analytical issues in understanding the drivers of international inflation co-movements. Speech by Philip R. Lane, Member of the Executive Board of the ECB, at the Inflation: Drivers and Dynamics 2020 Online Conference, Federal Reserve Bank of Cleveland/European Central Bank, 22 May 2020 22 May 2020 In my remarks today, I will discuss some analytical issues in understanding the drivers of international inflation co-movements. To do this, we use the anonymous data provided by cookies.We are always working to improve this website for our users. Since central banks typically seek to stabilise medium-term inflation and do not neutralise fully the impact of shocks on inflation outcomes, it is plausible that a preponderance of common shocks can account for strong co-movements in the deviations of national inflation rates from their medium-term target levels.Moreover, in a world of low inflation and low interest rates it is plausible that the impact of negative shocks on observed inflation is likely to be more persistent, since the available policy space to quickly offset negative inflation shocks is more constrained. Browse the ECB’s reports, publications and research papers and filter them by date or activity. This includes recognising the impact of trend forces such as globalisation, demography and digitalisation (together with climate change and the pandemic) on the underlying structure of the economy and the dynamics of wage and price setting. Find out how the ECB promotes safe and efficient payment and settlement systems, and helps to integrate the infrastructure for European markets. First, structural changes that increase international interdependence mean that a shock in one region may also affect economic performance and inflation outcomes in other regions. To do this, we use the anonymous data provided by cookies. Two categories of structural change may have contributed to greater co-movement in inflation outcomes. So far, the steady-state impact of digitalisation on market structures and pricing dynamics remains quite uncertain. Second, structural changes that affect national economies in similar ways mean that there may be a common pattern in observed inflation even if shocks are mainly domestic in origin. However, especially with rising wages and income levels in emerging economies, globalisation may in the future act as a pro-inflationary force. This mechanism is confirmed by empirical evidence showing that increased GVC participation is associated with more synchronised inflation dynamics.At the same time, it should be recognised that economic globalisation can also be a source of divergent inflationary pressures, especially during adjustment phases. In contrast, other types of structural change have the potential to contribute to divergent inflation outcomes across countries.Economic and financial globalisation influences inflation outcomes through several mechanisms.First, through enhanced trade linkages and higher cross-border knowledge flows, economic globalisation may contribute to greater similarity in productivity dynamics across countries. In fact, as shown in Chart 3, there has been an increase in cross-country correlations for headline inflation since the global financial crisis (left panel), but a decrease for core inflation (right panel).Inflation in the euro area and in the Organisation for Economic Co-operation and Development (OECD)Distribution of pairwise cross-country correlations of headline and core inflation(x-axis: frequency; y-axis: correlation coefficient)Sources: Haver Analytics and national statistical offices.Notes: The data cover 33 advanced and emerging economies at monthly frequency. Look at press releases, speeches and interviews and filter them by date, speaker or activity. For instance, international financial flows may amplify and prolong the domestic credit cycle, with the banking system obtaining additional leverage on international markets during upswings but suffering more rapid and severe funding outflows during downturns.Third, international migration flows also affect inflation dynamics.

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