Vol. 01 – The Volcker shock
8
involve the risk of upward shocks to inflation lasting longer (7) . Greater economic flexibility, with less centralized wage setting, also allows businesses to modulate wage revaluations according to their capacity to pass on the increase in costs to their customers and they might spread revaluations over time, depending on the evolution of their margins (8) . In addition, the energy intensity of GDP has fallen considerably since the 1970s. The steady decline in the amount of energy needed to generate a dollar of income was possible as oil-importing countries have taken numerous steps to reduce their vulnerability to energy shocks, namely by technological advances and substituting to sources such as natural gas and renewables, including solar and wind. Furthermore, there has been a paradigm shift in monetary policy frameworks since the 1970s. In the 1970s, central bank mandates incorporated multiple competing objectives, including for output and employment, and policymakers were inclined to attribute rising inflation to special factors, underestimating the pervasive and lasting impact of excess aggregate demand pressures. In contrast, today’s central banks have clear mandates for price stability, expressed as an
World - Global energy intensity tonnes of oil equivalent per $1,000 GDP
0,30
0,25
0,20
0,15
1970
1980
1990
2000
2010
2020
Source: World Bank, Rothschild & Co Asset Management Europe, March 2023
(7) ECB, Monthly Bulletin , 2008 (8) Agnès Bénassy-Quéré, “ A price-wage loop on the Christmas tree? ”, DG Trésor, 2022
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