The Next Big Number Keeping Markets on Edge

Throughout last year, investors worried about a phantom menace that could upset markets: higher U.S. inflation. They were wrong, to their own pleasant surprise. Now they could be right, which creates its own complications.

The key thing to consider is the power of expectations—perhaps the most important force in financial markets. For some, higher inflation has been a worry ever since global central banks engaged in extraordinary monetary policy. But consumer-price inflation has been puzzlingly absent: last year former Federal...