The key reason for this inflexibility is the change in the structure of the labour market; In areas such as services, paychecks have been on the rise to compensate for the fall in purchasing power. From my perspective, this creates a second round of the vicious cycle: companies, in order to maintain their margins, pass on these higher labour costs to final prices.
Wages are pretty stubborn and don't fall off a cliff like commodity or energy prices when they wake up, it's very difficult for them to back off without starting a major economic downturn. This situation puts central bankers in a complicated place; Using old-school methods like raising interest rates can really slow down buying houses or cars, but they're not as good at dealing with inflation in services, which really depends on how many jobs there are rather than how much it costs to borrow money.
Maintenance rates for too long could ruin the smooth transition we all hope for, leading to more unemployment, so we need to be more precise and, most importantly, considerate of the patient. To find a way to stability, we need to look beyond central banks from an economic perspective; We need policies that boost productivity and increase the supply side.
As an economist, I think we have moved from a demand shock phase to a supply management phase, we are at a stage where winning the battle against residual inflation will require a high dose of realism. We have to realize that keeping things stable is no longer just about interest rates.
It's about making big changes in how our economy works so that we can get more out of what we have. The main point is that the fight against inflation is not over, but the battlefield has changed: it is now not about spending too much, but about the stubbornness of our economies.
