© Reuters. FILE PHOTO: European Central Bank Chief Economist Philip Lane speaks during a Reuters Newsmaker event in New York, U.S., September 27, 2019. REUTERS/Gary He//File Photo
LONDON (Reuters) – Record high euro zone inflation risked fuelling “inflation psychology,” European Central Bank chief economist Philip Lane said on Monday, referring to a phenomenon when consumers and businesses adjust their habits in anticipation of higher prices.
Once inflation psychology sets in, consumers bring forward their spending to beat the rise in prices while businesses start lifting their own prices, expecting higher costs, with both behaviours perpetuating inflation.
“We have very high inflation rates now, and clearly we could be in a world where inflation psychology is taking hold,” Lane told the annual dinner of Britain’s Society of Professional Economists in London.
Euro zone at risk of “inflation psychology”, ECB’s Lane says