The Covid-19 pandemic has caused a decline in inflation and, in most euro area countries, an increase in the inflation dispersion between sectors. It will take considerable time until activity has been restored sufficiently to generate labour market bottlenecks, which –in the absence of exogenous shocks- are a necessary condition to see a broad-based and lasting increase in inflation. This suggests that for the coming years, we should expect inflation to fluctuate around a slowly rising trend. In the course of 2021, the unleashing of pent-up demand –under the assumption that a vaccine is sufficiently widely deployed- could cause a temporary pick-up in inflation. In this respect, a decline in the price elasticity of demand will play a key role.
The latest economic indicators show that the recovery in Chinese growth continued to strengthen in October. As seen in our monthly Pulse, the expansion of the blue area compared to the dotted area shows a more widespread recovery in activity in August-October than in the three previous months...
Customer traffic flows fell sharpest in the countries that were hit hardest by the second wave of the pandemic and that implemented full lockdowns, according to Google mobility reports...
