Monetary policy implications of deviations in inflation targeting: the need for a global cooperative, coordinated and correlated response

It is argued that “much of the variation in inflation is due to global factors such as imported goods and energy prices” and that much of that variation is expected to be transitory. However there are growing signs that such transitory nature of inflation may not be as transitory as was initially considered. As rightly argued, the extent and deviations of current inflationary levels necessitates extraordinary intervention – such as cannot be easily compared to previous experiences. To which it has to be added that the prevailing nature of inflation also necessitates a coordinated, cooperative global approach which incorporates the harnessing of similarities and expertise in historical supervisory and regulatory practices in facilitating a harmonized and correlated result. In order to better appreciate the magnitude of the issue at hand, reference needs to be made to past and current levels of energy prices, as well as other major contributors to current inflationary levels, and their implications for inflationary targeting and monetary policy. The nature and relationships involved in the inflationary dynamics is also not as straightforward and clear cut as it used to be and as it may appear to be – other previously absent variables having been incorporated into the equation. This paper aims to provide a clearer picture of the nature and relationships involved in the inflation dynamics – as well as illustrate the complexity of the relationships involved. Further, by highlighting similarities in the review frameworks and approaches by several major central banking economies and regulators, the paper also aims to highlight and illustrate that whilst coordination and cooperation may prove to be a daunting task, several approaches can be adopted to facilitate harmonization and coordination.