Lots of investors think inflation is under control. Not so fast
Tight labour markets suggest that prices may continue to rise faster than markets think
For the past year and a half high inflation has tormented central banks, haunted financial markets and weighed heavily on the minds—and wallets—of the public. By bringing about the sharpest tightening of monetary policy since the 1980s it shattered the previous consensus that rich-world interest rates would stay low for ever. In 2022 that created havoc in asset prices, causing everything from bitcoin to bonds to fall sharply in value. In 2023 it may yet do the same to the real economy: the average economic forecaster thinks that a recession in America is an odds-on bet. When economists write the history of the post-pandemic era, the resurgence of inflation and central banks’ battle with it will be the defining story.
This article appeared in the Briefing section of the print edition under the headline “A hard road”
Briefing February 18th 2023
From the February 18th 2023 edition
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