Tight monetary conditions are expected to prevent a price-wage spiral
due to the hike in the price level by 1 1/2 percentage points resulting from the introduction of a value-added tax in 1995.
In any case, with accelerating inflation and the risk of a price-wage spiral
, a relaxation of monetary policy would be inappropriate.
The growing labour-market slack should prevent the short-run effects on the price level of indirect tax increases and higher import prices from becoming entrenched in a price-wage spiral
Against the background of uncertainties about the size of a possibly remaining monetary overhang, the difficulties of interpreting underlying inflation in the face of indirect tax increases and the heightened risk of an emerging price-wage spiral
may put upward pressure on short-term interest rates in 1991, and leave little room for a decline in 1992.