ECB Governing Council member Gabriel Makhlouf said “predicting how demand and supply shocks will interact over the medium to long term is not straightforward”. “Both demand and supply side factors will continue to impact on inflation”. But he believed that “demand factors will dominate and lead to a fall in prices” with the coronavirus pandemic.
He explained, “fear of infection, weak labour markets, heightened uncertainty and higher precautionary savings will lead to lower demand for goods and services which implies that the real natural rate of interest is likely to remain at low levels.”
