One year since Russia’s invasion of Ukraine – the effects on euro area inflation

Rise in energy prices was a large terms-of-trade shock. • Large cross country differences in effects and required responses. • Policymakers, including in the UK, tightened policy sharply. • Shape of the shock + policy lags: • Limits to how much could be offset. • Suggests risks of overtightening (undershooting 2% target in medium term). US terms of trade have improved; UK and Euro area have worsened image Terms of trade patterns reflected in household consumption image Stylised transmission of global energy price shock to UK inflation image Policy and financial conditions have tightened rapidly and materially image Inflationary shock has a steep profile and expected fall tweet at 10:37am: Boe's tenreyro: i see a risk of overtightening rates in the uk. tweet at 10:37am: BOE’S TENREYRO: INFLATION IN THE UNITED KINGDOM IS EXPECTED TO FALL. tweet at 10:38am: BOE’S TENREYRO: THE FINANCIAL SITUATION HAS DETERIORATED.

I thank the organizers for inviting me to participate in this year’s U.S. Monetary Policy Forum. I have attended many of the forums, and this is the fourth time I have had the honor of being on the program. So I can say based on experience that the forum always chooses a topic of utmost importance for monetary policymaking and always successfully delivers a paper combining solid research and policy recommendations. This year is no exception. Over the past year, in the wake of rising inflation, the FOMC has taken deliberate action to remove monetary policy accommodation by raising the federal funds rate by 4‑1/2 percentage points and reducing the size of the Fed’s balance sheet through asset run-off. Returning the economy to price stability is an imperative for sustaining healthy labor markets and the U.S. standard of living. The very high inflation the economy has experienced for almost two years has been painful for households and businesses, especially those with fewer resources. High inflation also imposes longer-run costs on our economy because it distorts the decisions households and businesses make about building human capital and investing in R&D, plants and equipment, and other forms of physical capital. These decisions ultimately affect the pace of innovation, productivity growth, the potential growth rate of the economy, and improvement in our living standards. Incoming economic information shows that our monetary policy actions are having the intended effect of sl tweet at 10:16am: FED’S MESTER SEES INFLATION RISKS AS TILTED TO THE UPSIDE tweet at 10:16am: MESTER: ECONOMY DOES END UP IN RECESSION IN MOST DISINFLATIONS

tweet at 11:56am: BoE's Tenreyro: UK Now Likely To Undershoot Inflation Target tweet at 11:58am: BOE’S TENREYRO: INFLATION WILL BE REDUCED AS WEALTH IS SQUEEZED. tweet at 12:00pm: BOE’S TENREYRO: IF INFLATION PERSISTS POLICY WILL DO MORE. tweet at 12:01pm: Boe’s tenreyro: the main risk for the united kingdom is that we have overtightened.