Exploring the Recent Inflationary Pressure: Features and Challenges for Central Banks

One of the major problems reported worldwide is the recent inflation dynamics, reflected by its sharp increase since 2021 and the persistence of high levels in the following years. Starting from some specific features of the recent inflationary episode, the research focuses on analysing the dynamics of inflation in the European Union countries compared to how consumers perceive inflation. Using recent data provided by Eurostat, the ECB Survey of Professional Forecasters, and data provided by the European Commission business and consumer surveys for the European Union countries, the results show the maintenance of large gaps between the perception of inflation and its actual level. In response to the increase in inflationary pressure, central banks changed their monetary policy conduct from easing to restrictive, reflected by successive increases in policy interest rates. Although the inflationary pressure has eased, the forecasts show that it will remain above the predetermined target level in the coming years, bearing the risk of impairing inflationary expectations. In a pessimistic scenario, the persistence of above-target inflation can maintain a certain sentiment of uncertainty among consumers and implicitly fuel the negative perception regarding the evolution of inflation. Therefore, one of the major challenges facing central banks is to find a way to improve their communication strategy with the public by integrating the objective aimed at improving consumers’ economic and financial education.