Do our institutions still have enough credibility and is enough of the inflation still transitory for us to be able to return to low inflation at a low cost?
The return of inflation has surprised many, including central bankers. So has the resulting rise in nominal interest rates. These surprises have brought others with them, notably a mini-shock to banking. The question, then, is: “What next?” Will inflation subside to ultra-low pre-Covid levels or will it be a lasting problem, as in the 1970s and early 1980s? What, too, will happen to interest rates? As Stephen King, adviser to HSBC, notes in We Need to Talk About Inflation, many were...